Fitch on Italian Mortgage Market
Stagflation Adds Risk
Fitch Ratings released a Special Report on Italian Mortgage Market. Most relevante evidence include resilience of the market and potential risks from a stagflation perspective. Mortgage performance in Italy may be affected by the implications of inflation challenges and supply shocks in the next 12-24 months, Fitch Ratings says in a new report. However, Fitch does not expect substantial performance deterioration on housing mortgage loans given the prime nature of the collateral and resilient labor markets.
Stable Asset Performance Inflation challenges and supply shocks will drive interest rate rises and increased energy costs, which may affect mortgage performance in the next 12-24 months, especially for more vulnerable borrowers.
However, we do not expect substantial performance deterioration on housing mortgage loans as households tend to prioritise payments of secured debt and the labour market is proving resilient. Italian residential asset performance remained stable in 2021 compared with 2020 thanks to strong GDP growth year on year and the effect of government moratoriums.
The annualised constant default rate and 3m+ arrears indicators for Fitch-rated Italian RMBS are 0.7% and 0.9%, respectively, marginally below 2020 levels. Limited Supply Sustains House Prices In 2022,
House prices in Italy grew 0.5% in 2021, after a few years of stagnation. Fitch expects Italian house prices to register low-single-digit growth in 2022, supported by heightened demand and limited supply, largely consisting of dated properties. Housing demand is also driven by changes in housing preferences, with some shifts toward suburban areas and larger homes. Inflation challenges and reduced consumer confidence due to the war in Ukraine may curb demand for new housing.
Fitch expects the change in household preferences, together with a limited supply, will sustain a moderate house price increase, which will gradually return to pre-pandemic levels. After slowing during the pandemic, house prices in Italy gradually recovered in 2021, with high volumes of trades and a marginal increase in house prices.
In 2021, Italian Fitch-rated RMBS transactions recorded stable asset performance, with three-month-plus delinquencies stabilizing at around 0.9% as of 4Q21. The good performance of Italian residential mortgage loan portfolios is also explained by the overall credit quality of the underlying borrowers, with limited adverse features.
Seasoned RMBS Portfolios with Limited Adverse Features The good performance of Italian Fitch-rated RMBS transactions also derives from their portfolio compositions, with limited adverse features. In addition, Italian Fitch-rated RMBS transactions benefit from high levels of credit enhancement (CE). At end-April 2022, the Fitch-rated RMBS index comprised 17 transactions.
Link to the Report
https://www.fitchratings.com/research/structured-finance/italian-mortgage-market-resilient-stagflation-adds-risk-08-06-2022