Draghi’s recent statements confirm that the “calm” phase of interest rates is destined to last a little longer. But there are still differences between fixed and variable rates. If the installment of a variable rate mortgage is affected by the performance of the Euribor , when it comes to the fixed rate, the reference indicator is the Eurirs : forecasting its evolution can be very useful for assessing the best time to buy a house or subrogate your existing mortgage
The eternal dilemma: better fixed or variable rate?
Fixed or variable rate mortgage : on the one hand the security of having a constant installment over time, on the other the temptation to be able to save by resorting to a variable rate loan. It is the usual dilemma that afflicts those who have to resort to a mortgage for example for the purchase of their own home, or even for all those who are meditating on whether to change their mortgage, perhaps resorting to the instrument of subrogation. But how is the market moving in recent months?
The real estate market and the mortgage market
How is the real estate market in Italy and, consequently, the mortgage market?
As far as the real estate market is concerned, the picture, although in a general context of recovery, is less rosy than what one might imagine, especially in comparison with other European countries. The least positive figure is not so much the volume of sales, however in recovery with respect to the period of crisis, as that of prices, which are struggling to recover share after the loss of value recorded in previous years. And without a price increase, the market recovery cannot be “full” and satisfactory.
Read also: Is the real estate market in Italy really recovering?
On the other hand, the mortgage market is different, as it is benefiting greatly from the policy of supporting the European Central Bank’s economy, with interest rates truly reduced to historic lows. And in fact the Euribor continues to be in negative territory, while the Eurirs has had a slight rise in recent months. However, this rate of contraction in rates, with a real estate market that is struggling to fully recover, saw the subrogation contracts support the mortgage market. In short, you will not buy so many houses, but it is a good time to replace the existing mortgage. And in this case the fixed rate can be the protagonist.
The progress of the Eurirs in recent months
If the Euribor had a stable trend in 2017, confirmed by the first months of 2018, the Eurirs has instead recorded a slight increase. If we take the Eurirs 10 years as a reference, we have gone from 0.75 in January 2017 to 0.97 in January 2018.
In early 2018, the Eurirs seemed to maintain the growth regime, but starting in February it began to decline slightly
Forecasts on Eurirs and interest rates
So what can we expect for the coming months of 2018? As we have mentioned, interest rates should remain unchanged according to Draghi. The President of the European Central Bank has in fact said that he does not want to accelerate the reduction of policies to support the economy and inflation. According to several observers, therefore, official rates should remain unchanged throughout 2018 and, perhaps, also for the first half of 2019.
Regarding the forecasts on the Eurirs , a slight increase can be assumed, considering that this indicator is linked to the inflation trend, whose recovery is one of the main objectives of the ECB. Let us not forget, however, that Draghi himself pointed out that the growth in inflation is not as fast as expected, and this could contain the rise of the Eurirs .
Also read: The forecasts on Euribor and mortgage rates for 2018
Is it still the right time for the fixed rate?
To conclude, it being understood that the choice between fixed and variable rate is however very linked to the individual’s risk attitude, the moment still seems good for opening a fixed rate mortgage . In fact, we remind you that while in the variable rate the installment varies according to the Euribor trend, for the fixed rate the installment is “nailed” to a value that depends on the Eurirs in force at the time of the stipulation (let us remember, for completeness, that in order to obtain the applied rate it is necessary in both cases to add a “spread” applied by the bank). It is therefore very important, in case you opt for the fixed rate, to assess whether the starting time of the loan is favorable or not. And if the time of purchase of the house can depend on many other factors, for the subrogation from variable to fixed the choice of the right moment could just depend on the low value of the Eurirs . From this point of view it seems therefore that the moment is still good for the fixed rate, and that this time window can remain open for a while longer, if the ascent will be gradual as it seems.