Mortgages, the increase in Euribor causes the market to shift towards fixed assets. It puts young people on the sidelines

Mortgages, the increase in Euribor causes the market to shift towards fixed assets.  It puts young people on the sidelines

The rise in variable interest rates has boosted the mortgage market’s move towards Fixed exchange ratebut it also reduced the proportion of young people under 36 who apply for home financing.

Youth retreat

This is what the Mortgage Compass created by Crif and shows: Analysis updated to the first quarter of 2023, the Compass indicates that the group of applicants in the category of young people under 36 years of age is experiencing a decrease in its weight from 38% of the total applications online in Q3 2022 to 29% in Q1 2023. “The increase in the cost of funds – with the same income – leads to a significant decrease in the capital that can be obtained with a new home purchase loan. Hence, this decrease in strength Purchasing is pushing the growing segment of the under-36 market segment to delay the decision to buy a home and therefore the decision to apply for a mortgage. Moreover, we are now one month after the end of the first home security fund boost dedicated to young people: it will expire on June 30th and in the future we must stick to “new mortgage offers intended for the under-36 segment – at discounted rates for young people and for up to 40 years – which It helps support demand for this important segment.”

market movements

If we look at the general trend of the market, in parallel with the tightening of the European Central Bank in the first quarter, the Euribor grew again (from just over 2 to almost 3% on average in March), while the reference to fixed rates (Irs) grew From an average value of 2.57% to an average of 2.88%. “The two-speed growth trend of the indices, together with the fear of further increases in the Euribor indices over the next few months, leads to a real polarization of demand for new mortgages when choosing a fixed-rate mortgage, with what is already observed in the period 2021 – Early 2022. Thus, the percentage of applications on the online channel for fixed-rate mortgages increased from 58% of the total in the third quarter of 2022 to 93% in the first quarter of the year”.

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Cheaper landline

According to the analysis, it is not only the performance of the indices that changes the supply but also the commercial policy of the banks. Given a typical example of a home equity loan – a mortgage of €140,000, property value of €220,000 and a term of 25 years – a 35-year-old applicant could find a better variable rate in today’s market equaling to 3.45%. And having a monthly premium of €697 for the same operation, the current best fixed rate allows for a rate of 2.99% (and therefore about 0.5% lower than the equivalent variable rate) with a fixed monthly premium of €663, €34 less than the variable equivalent mortgage premium. Of course, one wonders what will happen when the ECB starts to reverse course, but for now the opportunity seems to be being seized.

And for those who already had a variant, the research continues, the sharp increase in 3-month Euribor – equivalent to a total of 3.66% over the period from January 2022 to March 2023 – also led to a significant increase in the amount of the monthly installment. Starting in the third quarter of 2022, this has led to a strong recovery in demand for Mortgage Solutions loans, driven by borrowers interested in protecting themselves against future increases and additional installments. Demand for home solutions loans continues to grow and in the first quarter of 2023 accounted for 36% of all online applications compared to 24% in the last quarter of 2022.

Slowing sales

Moreover, with the complexity of the mortgage scenario, the reversal in the real estate market trend is also evident. Sales fell in the last phase of 2022 after more than two years of growth. “The latter part of 2022 showed for the first time a decline in trading volumes after nine quarters of growth recovered from the impact of Covid,” says Stefano Magnolfi, CEO of CRIF Real Estate Servicesm Magnolfi continues. “Therefore, it was not until the end of last year that the transactional market showed the first signs of declining trade, due to the combined effect of rates that were rising sharply and price growth supported by inflation. With nearly 800,000 sales a year, it is still above average. Long-term, and the expectations for 2023 are actually based on a double-digit reduction also due to the continuation of restrictive policies in the mortgage market, to the extent that the share of housing purchased with mortgages reached at the end of 2022 to 42.8% compared to 52% at the beginning of the year, which confirms That who has money already and does not need to buy more and more reciprocity.

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