The rise in the ECB will hurt Italians, here’s how. Report Fabi
The ECB's decision on rates will lead to the doubling of installments on new fixed-rate mortgages. And not only. What Fabi's study says
There are 6.8 million households in debt in Italy, equal to approximately 25% of the total; of these, 3 and a half million have mortgages for the purchase of a house. And it is on them that the increase in the cost of money decided by the ECB weighs and will weigh the most.
Here is a summary of the results of a study by Fabi, the banking federation led by the general secretary Lando Maria Sileoni.
THE CONSEQUENCES OF THE ECB DECISION ON RATES
After the Eurotower board meeting which resolved on Thursday to bring the base rate to 3% and announced its intention to proceed with a new increase of half a point in March, Fabi took care of the calculations.
Buying a car in installments, for example a 25,000-euro model, could cost, in the case of a ten-year loan at an 11.3% rate, more than 5,500 euros more than in 2021. As regards new mortgages, the installments of those at fixed rates are destined to double, while for those at variable rates the monthly "repayment" should rise by 31%.
HOW FIXED AND VARIABLE RATE MORTGAGES WILL CHANGE
In more detail, for a new fixed-rate mortgage of 200,000 euros over 25 years (the average rate applied by banks could be 3.9%), the monthly installment is 1,056 euros. For a loan of 100,000 euros, again for 25 years, with a rate of 3.7%, the monthly installment is, instead, 517 euros.
As for old mortgages, on the other hand, there is no difference for those with fixed rates, while the installments of those with variable rates have undergone increases of up to 43%. Translated: those who used to pay an installment of around 500 euros a month, today pay 715 euros a month, or 215 euros more.
The new fixed-rate mortgages have gone from an average interest of around 1.8% to even over 4% with the monthly installments which, therefore, can even be doubled on the basis of bank offers.
New variable-rate mortgages could soon reach an average of 3.4% from 0.6% at the end of 2021: this means that for a 150,000-euro loan with a duration of 20 years, the monthly payment will be 872 euros, a good 206 euros more (+31%) than what would have been obtained a year ago, or 665 euros.
CONSUMER FINANCING
As regards consumer financing, the average interest rate, which at the end of 2021 was 8.1%, could reach 11.3%. To purchase a 25,000 euro car entirely in installments, with a 10-year loan, the total cost thus goes from 37,426 euros to 42,986 euros, with an overall difference of 5,560 euros (+15%).
If, on the other hand, you want to buy a 750-euro washing machine entirely in installments, with a 5-year loan, the total cost rises from 942 euros to 1,022 euros, with an overall difference of 81 euros (+8.6%).
SILEONI'S COMMENT (FABI)
“There is a further risk on the horizon: in fact, in March the European Central Bank could raise rates by another half point, thus reaching 3 and a half per cent. At the same time, however, the president of the ECB, Christine Lagarde, spoke of a probable change of strategy which would lead to no longer touching rates. Better late than never, it should be said, because unfortunately it is Italian families and businesses that pay the consequences”, comments Lando Maria Sileoni, general secretary of Fabi , the Autonomous Federation of Italian Bankers.
THE FABI STUDY ON MORTGAGES
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/bce-tassi-mutui-casa/ on Sun, 05 Feb 2023 08:05:03 +0000.