Last Thursday the ECB left the interest rate unchanged at zero. Good news for those who intend to make investments: money is cheap, that is, you pay little interest.
Families, for example, take the opportunity to buy a house, and in this regard we have seen how much does it cost to build a house per square meter in 2021 starting from scratch. The purchase of an apartment, let us remember, is given by the sum of the price of the property, the interest on the mortgage when this is stipulated and the initial costs (agency, notary, taxes, etc).
Interest rates and real estate loans: the installments remain affordable
The ECB rate decisions are very important because they derive the interest rate levels requested by banks on mortgages. The speech is true for both fixed and variable rate loans, and with regard to this topic we have already seen how to choose the most convenient mortgage.
In fact, the 3-month Euribor, that is the reference index for variable rate mortgages, in August was equal to –0.55%, very close to an all-time low. Instead, the average survey ofEurirs at 25, also last month, it stood at 0.26%.
So let’s see how much the monthly payment of a hypothetical mortgage from 100 thousand euros to 15 years weighs. Comparing the installments of some main market operators, it is approximately € 615 (average value) with the fixed rate, and € 580 with the variable rate.
Therefore, despite the fact that rates have risen slightly in recent months compared to 8-12 months, mortgages remain advantageous. According to market participants, the situation should not change until December. That’s why we can talk about mortgage payments that are still affordable but the deal of the century belongs to these mortgage holders. Who are we talking about?
Rates and inflation: even the slightest choice has its weight
The real lucky ones of this historical moment will not, in fact, be the next borrowers. It is true that they will still find low interest rates in the bank, and therefore the mortgage (fixed and / or variable) will prove to be convenient.
However, inflation on house prices has to be taken into account. If general prices go up, even those who sell homes could adjust the price of their apartment for sale upwards.
Basically, the gain on the lower mortgage cost could be canceled out by the increase in the price of real estate.
Mortgage installments still affordable but the deal of the century belongs to these mortgage holders
In light of these considerations, it is easy to understand that the main beneficiaries are the holders of fixed rate mortgages subscribed in recent months. These buyers signed mortgages at very affordable rates and then robust inflation followed. Let’s explain it with numbers.
Those who bought a home at a fixed rate last summer, the best 20-year rates were traveling with a TAN just under 1%. In August 2021, on the other hand, inflation was 2.1%, which is more than double that rate.
If inflation were to remain at these levels for a very long time, they can at least be satisfied. They borrowed money at interest rates below inflation.
Not to mention, finally, the possibility that inflation should rise again and reach over 2%. In that case they would have achieved the deal of the century. Over the years, in fact, they would return to the bank a capital lower than that borrowed (albeit increased by interest). A setback for the banking world!
Deepening
Should you buy a house in 2021 or wait for the next collapse in real estate prices?
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