Mortgage in Italy During the Сoronavirus

According to expert estimates of the economic impact of the COVID-19 outbreak, Italy should not expect a rise this year. In the context of the deepest global recession since World War II, market players say that Italy risks becoming one of the most fragile countries due to the heavily damaged services and tourism sector, as well as its already high public debt.

In the base case scenario, which implies a slow exit from the existing regime since the beginning of May, the reduction of Italian GDP in 2020 will be at least 6.5%: in just one year, the recession is equivalent in magnitude to the two-year period of 2008-2009.

In the first two quarters of this year, GDP fell by more than 10% compared with the pre-crisis situation with very large industry differences: from –10% in manufacturing to –27% in the field of travel services and to –16% in the field of transport and entertainment events.

According to expert opinion, Italy will be in 2022 with the GDP level still more than 2 percentage points below the level of 2019, and sovereign debt will be 150%.

Experts expect mortgage payments to decline in the first quarter of the year. Renato Landoni, president of Kìron Partner, predicts that the situation with COVID-19 will have an impact, and a decrease in mortgage payments will be from 3 to 4 billion euros only in the first quarter.

As soon as everything returns to normal, the policy of credit institutions will be reviewed. Banks will be interested in the influx of new investments, so they will be able to offer more interesting conditions against the background of a declining volume of payments. In his opinion, there are many variables that need to be taken into account in order to make a reliable analysis of the development of the mortgage market in 2020. The expert believes that mortgage rates will remain low for a long time, and foreign investors will be able to take advantage of this right after the end of the coronavirus pandemic. Now we need to analyze the trend in the volume of payments in order to get some clarity, look at the dynamics of the next period and draw a conclusion.

As for previous periods, according to statistics on financing real estate transactions in Italy, the number of mortgage payments in the country amounted to 49 billion euros in 2019. Compared to 2018, payments fell by –3.2%, with a compensation value of 1.626 billion euros. This is the result of the figures presented in the report «Banche e istituzioni finanziarie: IV trimestre 2019» (Banks and financial institutions: Q4 2019) published by the Bank of Italy at the end of March.

As for the fourth quarter of 2019, compared to the same period in 2018, there was an increase in the volume of payments on mortgage loans by + 9.3% with a payment of EUR 15.307 billion. As expected, in the last quarter of 2019 there was a decrease in the volume of payments on mortgage loans, which accumulated mainly in the second and third quarters of the year.

In more detail, mortgage repayment figures show that mortgage transactions in support of real estate purchases returned to a positive level (+ 1.3%); in the third quarter, the decrease was –6.6%.

In August 2019, a fall in interest rates led to a subsequent boom in demand in September, which, as expected, had an effect in the last quarter of the year; in particular, subrogation operations recorded a 68% increase in volumes (the previous quarter –37.2%). In the fourth quarter of 2019, subrogation operations accounted for more than 18% of the market.

«At the end of 2019, the market was stable, professionals had great expectations», comments Renato Landoni, president of mortgage brokers at Kìron Partner. «We now see the strong economic and financial impact of the health emergency caused by the COVID-19 virus. The next few months should add certainty and a clear understanding of what to expect from the real estate market in Italy, how foreign investors in Italian real estate should behave, what will happen with mortgage rates and loans in general».