09 December, Il Messaggero
Fixed or floating rate? The choice of the interest rate is essential. Mortgages have never been so convenient. The average rate to buy a house is at its lowest point with 2.02% in October, according to the Abi report. Not only. More than two people every three prefer the fixed rate, while the floating rate has decreased. Whereas the number of those requesting the “mixed rate” has increased. Another rising trend is that of buyers requesting to index the loan choosing the floating rate with “cap”, namely a floating rate mortgage with a maximum threshold pre-defined beyond which the rate cannot grow, even in the case the market rates will rise higher.
70.42% of the total buyers with a mortgage choose the fixed rate, as per the 25 thousand applications arrived in August. This option is recommended to those who fears that the market rates might grow and therefore wants to be certain on the amounts of the monthly payments and on the total amount of debt to repay. In exchange, however, the banks apply a very expensive spread, consisting in its profit. The parameter is the Eurirs, which might grow due to the inflation in the eurozone.
The percentage of who requests a floating rate has fallen to 22.21%. The fall is by 4.42 percent points in the last twelve months. In this case, the parameter, besides the official rate set by ECB, is the Euribor. The future rates show that this rate will grow, even if very slowly. In the meanwhile, the Euribor has been registering a negative trend since a few months, causing the banks to introduce a floor, namely a minimum threshold below which the agreed interest rate cannot go, given by the sum of the Euribor and the spread of the bank. But who chooses the floating rate, explains Facile.it, “can rest assured for the next three-four years”.
The threat of an increase
The percentage of the buyers that choses the mixed rate has gone from 2.35% to 4.71%. In this case, the rate can change from fixed to floating or vice versa with set deadlines or according to the contract conditions. The pros and cons are the same of the two options. The choice of the floating rate with the cap has gone from 0.24% to 2.66%. From one side, banks are trying to differentiate the offer. On the other hand, customers are aiming at a lower rate than the fixed one without giving up the opportunity of protecting themselves from potential future increases.
Loan to value
The amounts granted by banks have increased. The survey shows that the average value in August was 121,621 euro, 7.5% compared the previous 12 months. For the same period, the amount requested on average has reached 127,701 euro, 3.38% more. Concerning the loan to value, the gap between the amount requested and the amount issued by banks has reduced. The ratio between the value of the property to buy and the amount granted by the bank is slightly below 57%, with an increase of 5% compared to 2016. Whereas the ratio between the value the applicants hope to obtain and the actual cost of the property is equal to 59.75%.
The average duration of mortgages has extended from 20 to 22 years compared to 2016. The time factor is essential. If we consider a mortgage for the amount of 145 thousand euro with a fixed rate of 5.3%, as it was ten years ago. If the duration is 15 years, the monthly rate will be 1,169 euro and the interest in total will be equal to 65 thousand. If the duration is 30 years, the monthly rate will be lower, equal to 805 euro, but the total interest will be higher altogether: 145 thousand euro. Finally, the average age of the mortgage applicant has gone from 41 to 40.
Source: Il Messaggero
Translator: Cristina Ambrosi