Interest rates on home loans continue to rise. In two years the cost of money has more than doubled and there are no signs of a decline on the horizon. The dynamic is international, but it is also having a heavy impact on the budgets of Sardinian families who, due to the increases, have put the brakes on the purchase of properties.
The effects of the high mortgage prices on the island are written in the November report with which the Italian Central Bank updated the trends of the regional economy , also identifying temporally the negative trend in access to credit to buy a house.
The cost of money began to rise across Europe starting from the second half of 2021, when the European Central Bank increased rates to control inflation. Before then, interest hovered around 1 percent, which made borrowing from banks profitable. Accounts in hand, even in the case of a thirty-year mortgage, the sum to be repaid was almost identical to that requested on loan. It was the so-called “free money” phenomenon.
In December 2021, the definitive turnaround: the year ended with the Taeg, or the total cost of the loan, at 1.92 basis points. Twelve months later, in December 2022, the same value reached 3.46 percent, equal to a further increase of 1.54 percent.
The surge continued unstoppable even in the first quarter of 2023: in March the APR on home mortgages stood at 4.16. It meant a +2.24 points in fifteen months. And that's not all: the latest survey of June 2023, again contained in the Bank of Italy report, brought with it yet another adjustment, albeit minimal: APR for the first half of the year at 4.23 percent, which corresponds to +0.07 since March, while in the medium term the surge was 2.31 percent.
Obviously, the problem is all for families who have to pay a variable rate mortgage every month, which has been very convenient since 2010 and for the following ten years, when the ECB lowered interest rates and then kept them constant over time. The "free money" arrived after the great American subprime mortgage crisis, a recession that did not take long to make itself felt in Europe and to which the ECB responded by printing money and therefore circulating much more money.
In doing so, however, conditions have been created for the increase in inflation which is a factor of instability for economies and for this reason must be kept under control. The European Central Bank responded to the increase in prices by triggering the opposite mechanism in access to credit : the cost of money was increased to push families to spend less. Moreover, only by circulating less money can consumption decrease, to the point of causing a slowdown in the increase in prices.
By focusing this reasoning on the dynamics of access to credit on the island, Bankitalia has thus reconstructed the regional picture. "The flow of new mortgages - it is written in the report - began to reduce, by around 3 percent, in the second part of 2022, and then contracted more sharply in the first half of 2023". The contraction was significant, amounting to "-26.8 percent compared to the same period of the previous year".
The ECB's decision to increase interest rates has also changed the type of mortgage requested. Bankitalia analysts again on the Sardinian dynamics: «The cost differential between fixed and variable rate contracts, negative in the previous two years, had become positive during 2022, favoring the increase in new variable rate disbursements to over half of total at the end of the year." Then the trend reversal: «In the second quarter of 2023 the differential returned to being negative, pushing the share of new fixed rate mortgages to almost 90 percent, a value slightly lower than the average for the 2020-21 period».
A further element, entirely internal to the banking system, also had a negative impact on the real estate market , analysts noted: «The weakening of the demand for money by families, following the rise in interest rates, was associated with a tightening of offer criteria by intermediaries". In essence, credit institutions have made "the conditions applied to mortgages" more onerous. This choice involved two aspects above all: «The margins applied to customers and the percentage financed, or the ratio between the value of the loan and that of the property as collateral».
And if the final result of this mix has translated into the deceleration in access to credit for the purchase of a house, for now it has been the property owners who have gained: since last year, the value of houses has started to rise again . After the +0.7 percent in 2022, 2023 will close with an increase of 2 percent.
