How will the rate increase affect household budgets? Report Fabi
What emerges from the Fabi report, the first credit union, which in the aftermath of the ECB's announcement to bring interest rates to 2.5%, presented research on the subject by processing data from the Bank of Italy. The article by Emanuela Rossi
Growing for a few weeks, the upward race in mortgage rates, which could reach 6%, does not stop. This is supported by Fabi, the first credit union, which in the aftermath of the announcement by the European Central Bank to bring interest rates to 2.5%, presented a research on the subject by processing data from the Bank of Italy.
LOANS TO HOUSEHOLDS AND BUSINESSES BETWEEN 2018 AND OCTOBER 2022
Here are some evidences from the union organization study. In the period between 2018 and October 2022, loans to households and businesses rose by just over 42.5 million, from 1.3 billion to 1.34 billion (+3.3%). Those to businesses are down, -11.4 million (-1.7%), from 678.5 million to 667 million, those to households are up (+54 million, +8.6%) from 626.2 million to 680.2 million.
In particular, on the corporate front, the drop in short-term loans was felt above all by 65.8 billion (-30.3%), a reduction that did not offset the growth recorded in loans over 5 years, which increased by 59 .3 billion (+19.9%). In terms of medium-term loans (up to 5 years), the decline was more contained but still led to a decrease of more than 4.9 billion (-3%).
As regards households, again between 2018 and October 2022, we note the rise in mortgages (+46.1 billion, +12.2%) from 379.1 billion to 425.2 billion, in consumer credit (+ 11.9 billion, +11.7%) from 102.5 billion to 114.4 billion while other loans decreased by 4.1 billion (-2.9%) from over 144.6 billion to 140.5 billion .
FOCUS ON 2022
As regards the year that is about to end, considering that the data are available up to last October, the Fabi reports that bank loans to households have grown on average by 2.6%, those to businesses in the 1%. “Although the overall increase is a sign of the stability of the financing system, the analysis of the latest available data shows signs of concern and tension, for all categories, but with particular reference to the country's production system which is on the verge of a new credit crunch generated by interest rates” notes the union adding that, as far as households are concerned, in October there was an overall increase in loans of 900 million, from 663.2 billion in January to 680.3 billion in October.
This is an increase favored by the rise in loans for home purchases of 14.9 billion (+3.6%), to which must be added a modest growth in consumer loans, which increased by 3.6 billion. For Italian companies, the decline in loans over the ten months is evident in all categories. In October, however, loans fell by almost 10 billion, bringing the total stock from 660.5 billion to 667 billion. In detail, short-term loans decreased by 5.5 billion (-3.5%) from 156.7 billion to 151.2 billion, while loans up to 5 years by 1.4 billion (-0.9 %) from 159 billion to 157.7 billion. The long-term loans sector also suffered a setback, with a reduction of 2.5 billion (+0.7%) from 360.9 billion to 358.1 billion.
MORTGAGES, DISBURSMENTS BETWEEN 2019 AND OCTOBER 2022
The banking union has also collected data on mortgages disbursed in the last four years and thus it turns out that they have grown a lot between 2019 and 2021 while in the current year they have continued to increase progressively but at a less sustained pace. So we went from 388,515 in 2019 to 391,516 in 2020, to 409,869 in 2021, the biggest leap forward. 2022 began with a total of 410,377 mortgages to reach 425,243 in October 2022.
MORTGAGES, AVERAGE INTEREST RATES BETWEEN 2018 AND 2022
In the data presented by Fabi, it can be seen that – apart from a slight drop in 2020 and 2021 – interest rates have progressively risen from 2018 to today. From 1.78% in 2018, in fact, it fell to 1.61% in 2019 and 1.74% in 2021, to then return to 1.78% in January 2022 and rise up to 3.23 % in October 2022, latest data available.
FABI WARNS: MORTGAGE RATES WILL RISE TO 6%
According to the first banking union, "after months of rate hikes and variable mortgages bordering on sustainability, the final squeeze by the European Central Bank at the end of 2022 is a 'Christmas present', albeit a long-awaited one, that the ECB is giving to European citizens and outlines an important step to confirm – in the very short term – the trajectory of the cost of loans towards 6%”. In fact, he recalls, if in October the average rates stood at around 3.2%, when the cost of money was 2%, "on the market some intermediaries are already offering mortgages with interest rates above 5%". Therefore, with the cost of money increased by half a percentage point to 2.5%, "the horizon of 6% appears ever closer".
In a context in which consumers are penalized by inflation and low growth, Frankfurt's move "represents not only the pretext for making less use of credit, but also the probable cause of increasingly difficult repayments".
For Fabi, in fact, it will not be enough for banks to "take advantage of the rise in interest rates and expand the offer of financial products other than mortgages because the fate of those who do not have time to sign a subrogation or partially repay the existing mortgage, it is already marked and will add up to the shadow that has been looming for months on real wages and on the already increasing installments of those who have to repay their debts”. The fear of the trade union organization is that "the more than quadrupled cost of mortgages" could lead to "inevitable repercussions on installments and new loans" which will lead "to redesign the behavior of households and businesses, triggering a condition of unsustainability that will harm not only to the citizens, but to the whole system”.
THE COMMENT OF THE SECRETARY GENERAL SILEONI
The secretary general of the Fabi, Lando Maria Sileoni, while considering that the ECB's decision "will raise interest rates on household mortgages, with the exception of those at fixed rates, already contracted with the banks", invites Italian households not to give up “the dream of life, buying a house, because when rates
interest will drop and become more favourable, it will be possible to pay off the old mortgage with a new, more advantageous one”. The trade unionist then calls on the government to "financially strengthen the State Guarantee Fund for young people who want to buy a house".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/come-influira-laumento-dei-tassi-sui-bilanci-delle-famiglie-report-fabi/ on Mon, 26 Dec 2022 07:09:22 +0000.