Pressure on variable rate mortgages, installments up by 36% compared to 2022

Variable rate mortgages: installments increasing by 36% and financial exposure is growing

The ECB's inevitable response to combat inflation, with the increase in interest rates, has generated a series of consequences for those who have taken out variable rate mortgages, both private individuals and individual businesses. According to the analysis conducted by CRIF on the impact of the increase in mortgage rates (elaborated on the information assets of the EURISC Credit Information System), 26% of active mortgage loans in January 2022 were at variable rates. The most tangible effect of the rate increase was on the average installment of these: the installment has in fact increased on average by +36% compared to the minimums of mid-2022with a peak of +49% for mortgages disbursed in the last 5 years.

This increase inevitably also affected the financial exposure of those who took out a variable rate mortgage. In fact, the main evidence that emerged from the CRIF analysis is the increase in financial exposure of borrowers, despite the 24 installments paid in the period between January 2022 and December 2023. The analysis records that the rate growth trend has meant an increase of +25% in the overall level of indebtedness of those who have taken out a variable rate mortgage in the last 5 years.

In parallel, the increase in monthly installments has produced a significant worsening of the installment-income ratioon average by 8 percentage points from the lows of mid-2022. Furthermore, for mortgages disbursed in the last 5 years this worsening has reached 10 percentage points.

Despite the increase in interest rates, those with adjustable rate mortgages have not shown an increase in the default rate. The analysis of the financial tension index, constructed by CRIF to identify cases of excessive indebtedness and prevent situations of failure, shows a worsening. In this case, subjects with variable rate mortgages show an increase in financial tension, with a shift of more than 15 percentage points from the low and medium-low level classes to the medium-high and high level classes.

“The growth dynamics of interest rates have led to a significant impact on variable rate borrowers over the last two years. The analysis conducted by CRIF provides a detailed picture of this situation, noting above all how the financial exposure of subscribers to mortgages granted in the last 5 years has changed” – comments Simone Capecchi, Executive Director of CRIF. “However, despite these impacts, the data highlights that there has not been a significant increase in the insolvency rate although an increase in financial stress has been observed. The prospects of a possible rate cut in June 2024 raise hopes for relief for borrowers, reducing pressure and helping to stabilize the financial situation. In any case, it is essential, in the current macroeconomic and geopolitical context of uncertainty, to remain vigilant to face the challenges that the scenario could present.”