TIME TO SWITCH TO A FIXED RATE MORTGAGE?
If you have a variable mortgage which has more than a few years to run then you could benefit greatly over the long term by shopping around for a fixed rate mortgage now, if you haven’t done so already.
Clearly you will have been enjoying those reduced monthly mortgage payments for a long time but the situation in Italy has changed and Eurozone interest rates will most likely rise in 2019. Considering these factors it may be worth taking a fixed rate mortgage at this stage and paying a little more over the short term to make a far greater long term saving.
The same goes if you are looking to buy a property and start a mortgage, fixed rate may well serve you better over the long term. For those of you who are looking at taking a mortgage for the first time in Italy there is a helpful guide ‘mortgages made easy’ produced by the Bank of Italy in English.
There has been an unprecedented period of low interest rates in Europe but we are nearing the end of an economic cycle while Eurozone interest rates can only increase (they can hardly get lower). Although the latest indication from the ECB (who set interest rates across the Eurozone) is that rates will not rise until September 2019.
So you may think, what’s the rush there’s a year until rates will rise across Europe but the ECB is not the whole story. Since the current coalition government in Italy was formed in June 2018 international investors have been dumping Italian assets. Italy’s recent standoff with the EU over the coalitions proposed budget resulted in Moody’s cutting Italy’s credit rating in October 2018 once again and the value of Italian government bonds to fall. This presents a problem for Italy’s already precarious banking sector as falling government bond prices diminish their capital and increasing bond yields rasie funding costs. These additional costs are of course passed onto consumers and businesses through increasing borrowing costs.
The result can be seen on this OECD chart which shows long term interest rates in Italy have been on the rise again since September 2018. Therefore, unless something dramatically changes it is likely that mortgage rates in Italy will continue to rise over the coming years through a combination of the coalition governments reforms, a troubled banking sector and impending ECB rate rises.
That is why if you have a variable mortgage you should review your options and if you are looking to buy property and start a new mortgage it may make sense to take a fixed rate mortgage.
For those looking to change the type or provider of your mortgage the good news is that since the so called ‘Bersani Law’ of 2007 making changes to mortgages was simplified and the legislation also states that no penalties or charges can be imposed by the transferring instutution.
There are a few things to be aware of when shopping around for a mortgage, we would be happy to have a call with you to discuss so please feel free to get in touch.
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