Variable rate mortgages, why hasn't the installment dropped?

For variable rate mortgages, the installment did not decrease in January.
Indeed, in some cases they have increased.
The lowering of inflation, which is slowly returning towards the 2% target, offers hopes of a monetary policy more favorable to the reduction of rates.
However, although speculation on a possible change by the European Central Bank has already influenced the IRS index, linked to the cost of fixed rate mortgages, which recorded an early decrease, on the variable mortgage front there is not yet this evidence.
Let's now see why.
Variable rate mortgages: why hasn't the installment dropped? Variable rate mortgages have not yet reversed their upward trend, despite there being a small reduction in interest rates on fixed rate mortgages in December, as revealed by the monthly report from ABI, the Italian Banking Association.
In fact, the ABI reports that the average rate on new mortgages was 4.42%, compared to the 4.5% requested in November.
This is because fixed-rate mortgages, whose payments remain constant for the entire duration of the contract, follow the IRS index, which has been falling since November.
Yet even the Euribor rates, used to calculate the installment of variable mortgages, have fallen (slightly) in the last month.
But the installment is not affected by the decrease.
The explanation for this counterintuitive phenomenon lies in the complex articulation of the ways in which banks measure the Euribor indices.
In fact, there are different approaches, including the analysis at the end of the month, the monthly average, and the reference to the mid-month Euribor.
Situations have occurred in which some borrowers have not enjoyed the expected reduction in monthly repayments.
read also Mortgages declining in 2024, how much will the installments decrease and what is best to do? When will the installment start to decrease? Despite the current situation of uncertainty, a glimmer of hope emerges in the complex mortgage landscape.
After 24 months characterized by constant increases, we can see the first faint signs of a trend reversal in fixed rate mortgages.
Optimism is growing following the prospects of cuts by the European Central Bank (ECB) expected during 2024, according to statements by President Christine Lagarde at the Davos Economic Forum.
Confirmation that interest rates may have peaked rules out further increases and is an encouragement to those considering the option of an adjustable rate mortgage, as there may not be any further increases as in the past.
However, the downside is the prospect of having to wait some time before seeing an actual drop in rates.
The ECB, despite initial expectations of a possible cut already this summer, could only consider this measure during 2025, as indicated by Robert Holzmann, member of the ECB Governing Council.
His statements in Davos underline the ECB's prudence, indicating that, at least at the moment, "no reduction in rates is expected in the short term".
Philip Lane, chief economist of the ECB, in an interview with Corriere della Sera, emphasized the role of the latest rate increase in curbing the growth of inflation and suggested that any future decision will be part of a sequence of adjustments, rather than a single event.
The context of uncertainty underlines the importance of a balanced and gradual management of monetary policy to avoid counterproductive effects on the mortgage market and on the financial prospects of borrowers.
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