Rates on new Italian mortgages rose to 2.24 percent in October, dragged down by an increase in bank margins that is easily attributable to the need to cope with changed conditions in the government bond market, with the spread between Btp and Bunds having made a not insignificant acceleration during the period under review.
But what will happen in the near future? Will mortgage rates continue to rise? Or are we experiencing a minimal recalibration to levels that will continue to be of great relative convenience?
Spread effect and mortgage rates
In fact, at least reading the latest Financial Stability Report published by the Bank of Italy, mortgage rates have not only remained essentially unchanged throughout 2018, but are also expected to remain at these affordability thresholds for 2019.
Of course, there is no shortage of specific risks. Among the biggest is precisely the so-called "spread effect," with the National Street Institute pointing out that if government bond yields remain at these thresholds, banks could tweak their margins upward, thus going into the pockets of new borrowers.
Little, if anything, should change, however, for the pool of borrowers who already have mortgages: the same bank reminds us that 40 percent of the stock is marked by a fixed-rate mortgage for at least 10 years, and that the remaining share is mainly occupied by variable-rate mortgages indexed on Euribor, that is, on a parameter that is not directly affected by the increase in sovereign debt risk.
Good resilience of Italian households
For Bankitalia, good news also seems to come from debt repayment capacity, which remained at satisfactory levels in 2018 thanks to growth in disposable income and low interest rates.
Also in light of this, it finds it easy to justify reading how the share of impaired loans in total household loans has shrunk to 7.7 percent, a full 3 percentage points lower than 3 years earlier, and how the share of vulnerable households in 2019 is expected to remain below 2 percent of total households.
Technicians point out that vulnerable households are defined as those households that have a limited amount of financial assets available and usable to be able to cope with adverse events. The deposits of such households are generally sufficient to be able to guarantee the payment of about 10 monthly payments, compared to more than 30 for other households with mortgages.
As for future scenarios, for Bankitalia, an increase in the 3-month Euribor 100 basis points higher in 2019 would lead the share of debt at risk to 12.3 percent, compared with 11.3 percent today. In an even worse scenario, with rate changes higher than those recorded historically, debt at risk would rise to 13.7 percent, while vulnerable households would be 2.1 percent.
