In today’s dynamics of financial markets, the positive trend of the Italian stock exchange is accompanied by one stability of the spread between Italian government bonds (BTP) and German ones (Bund). This scenario, outlined by the opening of the electronic markets, is of particular interest for investors and for those who have mortgages in progress or are considering the opportunity to take out one. But what exactly does this combination of factors mean, and how can it affect borrowers?
Stock market rising and spread stable: what it means
The positive start for Piazza Affari translates into a increase in the Ftse Mib index by 0.55%, while the FTSE All Share recorded an increase of 0.54%. This data suggests a climate of trust and optimism of operators towards the Italian economy and the prospects of companies listed on the stock exchange.
A rising stock market can be interpreted as a sign of good economic health, with potential positive impacts on employment, investments and family income.
In parallel, the spread between Italian BTPs and German Bunds recorded on 6 June 2024, a thermometer of investors’ risk perception towards Italian sovereign debt, remains stable compared to the close of June 5th, reaching 130 basis points. This despite the expected rate cut by the European Central Bank (ECB), confirming a certain degree of investor confidence in Italy’s financial solidity despite the context of uncertainty linked to European monetary policy.
But what are the implications of this scenario for those who have or intend to apply for a mortgage?
How spreads and stock markets affect mortgages
A rising stock market can help more favorable financing conditionsas banks may be more likely to lend on more favorable terms when the economic environment is positive and repayment prospects are better.
On the other hand, the stability of the spread between BTPs and Bunds can remain interest rates on variable rate mortgages remain constantoffering buyers greater predictability over finance costs in the medium term.
However, it is important to note that other factors, such as the monetary policy decisions of the ECB or the evolving global economic situation, can further influence market conditions and, consequently, financing conditions. Therefore, those who are interested in obtaining a mortgage they should carefully monitor the performance of financial markets and consult financial experts to evaluate the best available options.
It’s true that the current combination of a rising stock market and a stable spread offers a relatively positive environment for those involved in the real estate and mortgage markets. However, it is essential to maintain an overview and consider all the elements which can influence financing conditions in order to make informed and prudent decisions.
How much does the spread affect the mortgage?
The spread, which represents the difference in yield between government bonds from countries considered safer (such as German Bunds) and those from countries considered riskier (such as Italian BTPs), can directly influence the financing conditions of mortgages in different ways.
For example, the spread can affect mortgage interest rates, in particular those with variable rates. If the spread widens, banks may raise interest rates on mortgages to compensate for the greater risk associated with financing. Conversely, if the spread narrows, banks may be more likely to offer lower interest rates. As a result, fluctuations in the spread can make monthly payments on variable rate mortgages are less predictable, as interest rates can vary based on market dynamics. This can represent a source of uncertainty for borrowers who prefer to have greater stability in their payments.
Furthermore, since mortgages are long-term financing, even a small change in interest rates can have a significant impact on the total cost of the mortgage During the years. An increase in the spread may therefore result in an increase in the overall cost of the mortgage for the borrower and may make it more difficult for some borrowers to obtain finance or lead to a reduction in the maximum amount banks are willing to lend. This can limit accessibility to credit for those looking to purchase a home or restructure an existing loan.
