Mortgages: falling rates, more favorable conditions, and recovering demand

Interview with Angelo Peppetti, Head of the Credit and Development Office of the Italian Banking Association

The latest Monthly Report from the Italian Banking Association (ABI) highlights a drop in interest rates on mortgages and business loans. In December 2024, the average rate on new home purchase transactions fell to 3.11%. What does this mean?

"The decision to purchase a property, financing part of the transaction with a mortgage, is influenced by numerous variables, primarily related to the professional and income prospects and expectations of the person or family making the decision. Undoubtedly, the latest available data confirm the almost constant downward trend in rates observed in 2024, with the average rate on new home purchase loans falling by 1.32 percentage points overall compared to the beginning of the year."

Rates have been falling since the second half of 2024. Can we already see concrete effects on demand for new loans?

"According to the bank lending survey published by the Bank of Italy, in the last three months of 2024, demand for new mortgages by households returned to growth, marking a reversal of the trend compared to previous quarters, thanks precisely to the fall in interest rates. In fact, in December 2024, loans for home purchases grew by 1.2% in annual terms, up from -0.1% in December 2023."

A mortgage is sometimes necessary when buying a home. Are conditions favorable today? Is it easier for people to access mortgages?

"Market conditions, as illustrated in the previous answers, have been objectively more favorable in recent months due to falling interest rates. In addition, there are specific instruments: the Guarantee Fund for first home mortgages provides a public guarantee of 50% to 90% of the principal amount of the mortgage requested, facilitating access to credit for certain categories of borrowers such as young couples, single-parent families with minor children, large families with at least three children, and young people under the age of 36. In the event of temporary financial difficulties, when specific events occur, it is also possible to apply to the Solidarity Fund for first home mortgages.

The lowering of mortgage rates applies to new transactions. What happens to those who already have a variable-rate mortgage?

The reduction in rates also affects existing variable-rate mortgages. This is because the ECB's monetary policy decisions are reflected in the market, mainly influencing the Euribor, the main reference rate for variable-rate mortgages: when the Euribor falls, existing mortgages also benefit from a drop in rates, resulting in a reduction in monthly payments. For example, in February 2025, the 3-month Euribor rate was 2.52%, down from 3.92% in the same month of the previous year. However, the effect of this decrease on the installment varies according to the characteristics of the mortgage, in particular the amortization method and the remaining term of the loan: in the early years of the loan, when the interest portion of the installment is generally higher, the reduction in rates can have a more significant impact.

At the end of 2024, the “Guidelines for the valuation of real estate collateralizing credit exposures” were updated: how do these tools contribute to the real estate market?

The Guidelines, which are the result of the work of a specific multidisciplinary ‘Technical Committee’, promote transparency and fairness in property valuation procedures for loan guarantees. The continuous updating—we are now in the fifth edition—stems from an awareness of the attention that real estate valuations deserve in relation to the importance of real estate assets for the wealth of Italian families, the growth of the mortgage market, and the constantly evolving national and European legislative and regulatory context."