After the announcement of zero European Central Bank (ECB) rates for the whole year and the new round of targeted loans by Frankfurt to European credit institutions, how have mortgage rates reacted? Let's see what the future holds for mortgages in Europe.
The Governor of the ECB has announced that from next September a series of Targeted Longer-Term Refinancing Operations (TLTRO) for credit institutions will be launched on a quarterly basis and with a maturity of two years each, ending in March 2021. The operation is the means that the ECB intends to use to support the real economy, encouraging the provision of loans by banks in favour of business and personal investment and thus boosting the GDP.
These are in fact auctions through which the ECB provides loans for a period of four years to banks in the Eurozone at rates that can range from the reference level for deposits (-0.40%, which means that the ECB pays to grant loans) to 0%. Banks will be able to borrow 30% of the liquidity needed to provide loans (but not mortgages for real estate) to households and businesses.
What effect will the TLTRO have on mortgage rates?
The effect of these TLTRO on mortgage rates will not be direct because the soft loan will not directly affect the liquidity to be used in home financing. However, as banks will be able to pay subsidised lending rates for other services, they will not need to raise lending rates – including loans – for a long time to come.
Forecasts for Euribor 2019
Euribor, the reference rate for variable-rate loans, has not changed significantly in recent months. The three-month maturity, the most widely used rate for Italian mortgages, remained unchanged at -0.31. The one-month, six-month and 12-month maturities remained at -0.37, -0.23 and -0.11 respectively.
As for the Euribor forecasts, according to the website Cercamutuo.com, a slow increase is already underway. Currently, futures rates predict a 3-month Euribor above the threshold of zero from 2020. Also according to the futures, the quarterly maturity of the Euribor should begin to grow steadily to 0.50 in 2021 and reach 1% in 2022.
Forecasts for Eurirs 2019
As for the IRS rate, the reference rate for fixed-rate loans, it reached lows this year after the announcement of the TLTRO. The five-year rate was 0.08, while the 10-, 15-, 20- and 25-year maturities fell to 0.60, 0.96, 1.14 and 1.20, respectively.
As far as forecasts are concerned, the Eurirs could experience a faster rise in inflation than expected in the Eurozone in 2019. However, Cercamutuo.com founder Stefano Tempera says that at the moment there is not “a great chance of strong growth in Europe so rates will go up. Anyone arriving after Draghi (head of the ECB) will have to consider that if there is no growth, rates cannot go up.”