Mortgage rates in Italy 2019: will banks raise spreads?

Current mortgage rates in Italy seem to be too low to keep dropping. So will mortgage interest rates soon start to rise? We asked the experts from Italian mortgage providers...

Italy has seen low interest rates for mortgages for many months now; since last summer, the relative worsening of conditions of home loans by the major banking groups in Italy has led some to believe that the reversal of the trend is now close.

The spread increases for mortgage rates in 2019...

"It is indeed true that the rates applied by banks are still quite low for several reasons,” says Ivano Cresto, Head of the Business Unit for mortgages at Facile.it. “Basically, linking this to the boom period as regards property prices, which fell in 2018 by almost 2%, this is a good time to purchase a house in Italy. It is also true, however, that this period will not last forever and that bank spreads, especially for fixed rate mortgages, have been rising slowly for a few months now. We will have to wait to see what the new political-economic scenarios will be both at the national and European levels and how banks will deal with them to find out how this will affect the market for mortgages for individuals.”

"Tomorrow the ECB could introduce new liquidity on the market through the TLTRO,” says Antonio Ferrara, Ad at Monety, “which will certainly give life to the economy by stimulating investment. However, the problem of tax and labour reforms remains the central issue for the growth of our economy. Despite these premises, rates are and will remain extraordinarily competitive in the near future, as will house prices. For those who have the opportunity to invest, this is a particularly positive economic situation.”

"Rates for mortgages have been rising for several months now,” notes Renato Landoni, President of Kìron Partners. “The economic situation in Italy is not particularly lively: GDP growth is lower than expected and below the EU average, public debt is increasing and for young people the employment situation is quite complex. Moreover, the continuous tensions on the BTP-Bund spread certainly don’t create an atmosphere of "security", which would allow banks to be more competitive with their products. We therefore expect a slight, gradual increase in interest rates in the next few months of 2019, while still finding a willingness to increase the flow of money lent for 2019.”

...but not that quickly

However, it’s important to reflect carefully on these matters. While it’s inevitable that the banks’ mortgage spreads will go up, it may not be as soon as you think. Roberto Anedda, marketing manager of Mutuionline, explains why.

"Given that the number of mortgages for families is relatively small compared to the totality of banking operations and products,” he says, “in fact, mortgages don’t make up the bulk of the banks’ profit. Buying a house is a long-term investment, and very often people contract mortgages to buy their first house, so it is an important investment but also infrequent compared to other operations that in this sense could be more relevant for banking balance sheets.”

Banks don't need to raise mortgage rates

What does this mean? "It means that raising mortgage rates could in many cases be counterproductive,” replies Anedda. “Mortgages are a product that, as I said, doesn’t justify the profitability of a bank alone, but perhaps represents a means to retain customers and to offer them other relatively more profitable products. Raising the cost of mortgages could indeed guarantee a margin of greater profit, however small it may be, but it would backfire on the bank with respect to all their other products.”

What factors are playing in favour of banks being prudent in raising spreads? "The European Central Bank’s rates are still low,” says Anedda. “The QE is finished, and the loans granted to support the banks during the period of crisis are coming to an end, but the resolution of new subsidised loans (TLTRO) for the banks is highly probable, so the possibility for the banks to refinance themselves at competitive rates remains strong. This will still allow the banks to continue their offers on products such as mortgages.”

When will spreads on mortgage rates rise?

Is there a possibility that banks in Italy will still agree on a general price increase? "This is something that could have happened months ago, but hasn't happened yet,” is Anedda's opinion. “Already after last summer, in fact, the main Italian banks have raised the spread of the rates by a few tenths of a cent, without being followed by all the others. But even in the past few months, if not years, the rates were so low that much higher spreads could have been applied (within the limits of the usury threshold rates) without the demand being affected too much. Yet this did not happen. On the contrary, they have continued to fall.

How come? "It happened on the one hand because the EURIRS and Euribor rates continued to fall,” says the marketing manager of Mutuionline, “and on the other hand because in some cases it was in the interest of the bank itself: each knows its own customers, and knows when raising a spread on a mortgage could damage the rest of the business in return for a minimal gain.”

So what should we expect in the coming months? The logic of a generalised rise in itself could happen, but nothing has happened since October," observes Anedda. “Also because in the meantime the prospect of an effective increase in interest rates seems to have been at least postponed in the light of the pending decisions of the Federal Reserve. At the moment, therefore, with the exception of financial institutions that have a large share of their business dedicated to mortgages and know that they can retain customers, the choice to increase rates may not be shared immediately by other institutions. In the end, therefore, it is still possible to find favourable offers and it will certainly be advantageous for a long time to come."

"We are in a situation where interest rates are at their lowest ever,” stresses Riccardo Bernardi, CDO of 24MAX. “In fact, a customer can take out a variable rate mortgage around 1% and a fixed rate mortgage at around 1.80%. This situation of interest rates combined with the market values at their lowest compared to the peaks of the last 10-12 years goes to show this is an exceptional moment for those who can and intend to buy a property today. If there were an increase in rates even to the order of 0.50%, it would not change the fact that the situation would remain favourable to those who intend to buy a property by taking out a mortgage.”