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PROPERTY

PROPERTY: How Italian mortgages are getting more expensive

Mortgage rates have been rising in Italy throughout 2022, with further increases expected. Here's how much higher repayment rates are expected to get.

PROPERTY: How Italian mortgages are getting more expensive
Getting a mortgage in Italy will now cost more in repayments than it a year ago. Photo by Tierra Mallorca on Unsplash

Average mortgage repayments in Italy are going up, meaning that people either on a variable mortgage rate or applying for a mortgage now will be paying more than they were last year.

But as mortgage rates were at a record low last summer, just how bad is the outlook really and what should homebuyers expect?

READ ALSO: The hidden costs of buying a home in Italy

Interest rates have been increasing for around six months, with the situation made worse by Russia’s invasion of Ukraine, pushing up the cost of goods and services.

The European Central Bank last week announced further “significant” inflation hikes, set to further impact on the cost of living.

The ECB predicts inflation will reach 6.8 percent in 2022, before declining to 3.5 percent in 2023 and 2.1 percent in 2024. These are all higher figures than were forecast in March.

For Italian mortgages, this means a higher monthly outlay due to the knock-on effect of higher mortgage interest rates – although those already on fixed rates are protected from the currently volatile market.

New figures from Italian consumer rights association Codacons show what you can now expect to pay according to the ECB’s interest rate projections.

In the case of a 30-year variable-rate €200,000 mortgage in Rome, the total increase in repayments would be just over €16,000 in the event of a 0.50 percent increase in mortgage rates.

The monthly hike would come to just under an additional €50.

According to financial forecasts, if the increase were 0.25 percent, an instalment would go from €619 to €642, but if it were 0.50 percent – as is predicted for September – it would reach €665.

Price comparison website Facile.it also looked at what the changes will mean for monthly repayments, predicting that the variable rate will increase to over 2 percent by the end of the year.

Taking a €120,000 loan to be repaid in 20 years, today’s average variable rate is 0.85 percent, with a monthly instalment of €544.

Photo by Nils Schirmer on Unsplash

According to predictions, the variable rate will rise to around 2.2 percent by the end of 2022, meaning a higher monthly instalment of around an extra €75.

By June 2023, the variable rate is projected to rise to 2.95 percent and the mortgage instalment to increase to €663, making that an extra €120 to pay each month.

Is Italy heading for a market slowdown?

The latest figures are making homebuyers nervous.

According to a survey published by Facile.it, almost 2 million people in Italy have stopped looking for a new property due to the increase in mortgage rates.

The cost is likely to rise further following the ECB’s announcement, the report noted.

“In a period of rising rates such as the current one, choosing a mortgage becomes a more delicate operation,” stated a spokesperson.

READ ALSO: The most expensive places in Italy to buy a house in 2022

“There is no absolute right or wrong choice between fixed rate, variable rate or hybrid solutions, the decision has to be made according to the specifics of the would-be borrower: risk appetite, income, duration of financing, age, and so on. The help of an expert advisor therefore becomes more important than ever.”

After years of falling mortgage rates, researchers said fixed rates have already risen and an average mortgage fixed rate will rarely fall below 2.4 percent.

Those who choose a variable rate, on the other hand, are said to be able access lower loan repayments, which start at 0.65 percent – but, as noted, won’t stay at that level for long and are subject to market fluctuations.

Historically, it’s still a good time to get a mortgage

Although the news seems gloomy for those on variable mortgages or those applying for a mortgage now, the figures follow record low interest rates on mortgages last year.

Italian mortgage rates fell to “historic lows” last year, the Italian Banking Association (ABI) said, after a cut to interest rates by the ECB meant 

A drop in interest rates from the ECB in May last year saw mortgage interest rates in Italy fall to their lowest in a decade, with monthly repayments almost halving in that time.

It placed Italy as the European nation with the lowest fixed mortgage rate.

Even though mortgage repayments across the country this year aren’t as favourable as in 2021, it’s still a comparatively good time to take out a mortgage.

Meanwhile, the ECB has pledged to return inflation to 2 percent over the medium term, which may subsequently bring down mortgage rates in Italy too.

See more in The Local’s Italian property section.

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MONEY

EXPLAINED: What is Italy doing to cut the rising cost of living?

Amid soaring inflation and price rises, the Italian government has announced new measures to help families and businesses keep costs down. Here's what you need to know.

EXPLAINED: What is Italy doing to cut the rising cost of living?

Italy approved a much-anticipated aid decree on Thursday, August 4th, bringing a new round of state funding intended to tackle the country’s most critical issues: from the rising cost of living and sky-high inflation to the energy and supply crisis. 

READ ALSO: Fuel tax cut and help with energy bills: Italy approves inflation aid package

The ‘aiuti bis’ aid package, worth around 17 billion euros ($17.4 billion), likely marks the last major act by outgoing prime minister Mario Draghi before an early general election next month.

The funding is seen as badly needed after inflation hit 8 percent in Italy in June – the most severe spike the country has experienced since 1976.

After weeks of speculation about exactly which measures may or may not be included in the decree, we now know it contains everything from an extension to the fuel duty cut to more help with energy bills for those on lower incomes.

Here’s what you need to know about the latest measures intended to keep the cost of living under control.

Extension to fuel duty cut 

The current discount on fuel duties is to be extended again to September 20th, though the value of the discount will drop from 30 to 25 cents. 

The discount was recently extended to August 21st but the government decided to further prolong the incentive in a bid to ease the blow that record fuel prices have dealt to consumers and businesses.

The cut was initially introduced as far back as March when the average prices at the pump for petrol and diesel both exceeded the two-euro mark.

Help with energy bills

Measures introduced in the first half of the year to help lower-income households and vulnerable people pay rising energy bills will be extended under the new decree.

It extends an existing government discount on gas and electricity bills for a further three months, until the end of 2022, as well as reducing system charges.

READ ALSO:

Italy’s tax on the ‘excess profits’ of energy companies has meanwhile been extended to June 2023 after the government reportedly received fewer payments than expected.

Tax cut for employees

Workers earning a gross income of under €35,000 are eligible for a two percent tax saving, amounting to a small monthly ‘pay rise’ until the end of this year.

“Already in the budget law we reduced social contributions by 0.8 percent; for the second half of the year this reduction goes up to 2 percent, as we’re now adding 1.2 percent”, said Economy Minister Daniele Franco at a press conference on Thursday.

As the tax relief lasts until the end of the calendar year for a six-month period, the July deduction will be retroactive.

New aid measures announced on Thursday are hoped to boost Italy’s consumer spending power as the cost of everyday goods rises. Photo by ANDREAS SOLARO / AFP

Those earning €35,000 can expect to save around a further €30 per month (1.2 percent of a monthly salary of €2,692 – most Italian salaries are paid out over 13 rather than 12 months to give employees a tredicesima Christmas bonus).

To find out how this may apply to you, it’s advisable to speak to an accountant or your local Italian tax agency (Agenzie delle entrate) office.

More funding for mental health treatment

The new decree will also enhance the existing ‘psychologist bonus’ (bonus psicologo) by allocating an additional 15 million euros to the measure. This will bring the total amount of funds available for the bonus to 25 million euros. 

The bonus was officially introduced at the end of July to help make mental health services more affordable, amid a pandemic-induced crisis in Italy.

All individuals with an Isee (a calculation of relative household income and wealth) lower than 50,000 euros will be eligible to receive a 600-euro voucher, which they’ll be able to use when seeing professionals listed on Italy’s official register of psychologists.

See more information about claiming the bonus in a separate article here.

Discount on public transport tickets

The government will allocate a total of 101 million euros to funding its ‘transport bonus’ (bonus trasporti); 22 million more than the original amount.

The bonus takes the form of a one-time 60-euro discount to be used on the purchase of monthly or yearly tickets for local transport services.

It will be available from September 2022 to all pensioners, students, and employees with an Isee of up to 35,000 euros.

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