Italian Mortgage Information

Here we reveal key Italian mortgage information by looking at the requirements for getting a mortgage on an Italian property, the types of products available and the costs involved.

Italian Mortgage Information : The Basics

Here are the basic facts of an Italian mortgage (Mutuo Ipotecario) :

• When taking an Italian mortgage, it will be in Euros and will be secured against your Italian property.


• You are unlikely to be able to borrow more than 80% of the property you want to buy, and possibly as little as 60%.


• Loans are from anything between 5 to 30 years up to age 70.


• Italian mortgages are full status - you will need proof of income and all outgoings will need to be declared when applying. Italian lenders will assess not your income, but your actual ability to service a loan. So, in effect, they will look at your net income, after tax and all outgoings. Generally, around 35% of your net income will be viewed as covering your existing outgoings and servicing your Italian loan. Here is an example breakdown:
  
  

  Net Monthly Income	€ 5,000
  35% of 5,000 net income	€ 1,750
  Existing Mortgage Repayments	€ 500
  Other outgoings, loans etc.	€ 600
  Total Outgoings	€ 1,100
  35% of net income minus total outgoings	€ 1,750 - € 1,100 = € 650

  
  

  In this example, an Italian lender would consider a mortgage with repayments not exceeding €650 per month.



• Potential rental income from the property is not likely to be taken into account by Italian mortgage lenders when calculating the level of borrowing for the applicant.


• Life assurance is not mandatory when taking a mortgage in Italy.


• You will need to open an Italian bank account before completion, from which your mortgage repayments will be debited and you will need to consider the cost of having money transferred from your UK bank each month.
  
  
  • You can either looking for an international regular payment plan . There are foreign exchange providers that offer a renewable 12 month regular payment plans. The exchange rate is fixed at the start of the plan, and the agreed amount will be debited from your local account and sent to your Italian account each month.
  
  
  • Or, you need to be sure that your Italian property can generate sufficient rental income in Euros to cover the finance payments.
  
  Either way make sure that you consider this expense when preparing your budget.

Italian Mortgage Information : Types of Mortgages

While the mortgage market in Italy has evolved and become far more flexible as compared to a decade ago, the level of competition between the lender is nowhere near that in the UK for example which results in far less availability of attractive rates.

There are two main types of Italian mortgages :

• Fixed-rate mortgage offers a fixed interest rate for a set period of time. Once the fixed rate period has ended the mortgage will revert to the lender’s standard variable rate.


• Variable rate mortgage offers an interest rate that changes over time, usually when changes are made to the European Central Bank base rate. You can usually get an initially lower rate on a variable rate Italian mortgage than a fixed rate Italian mortgage.

There are also two main ways to repay your Italian mortgage :

• With a repayment Italian mortgage you will make monthly repayments that comprise of the capital you borrowed and the interest on it. At the end of the mortgage term you would have paid off the mortgage amount completely. By far the most common mortgage in Italy is the repayment type.


• With an interest-only Italian mortgage you will make monthly payments that only cover the interest on the amount you borrowed. At the end of the mortgage term you will have to repay the amount you borrowed in a lump sum. To get an interest-only Italian mortgage you will need to be able to prove to the lender that you have in place an alternative repayment vehicle in place – such as an insurance or investment policy – that will cover the outstanding loan at the end of the mortgage term.

Which type of mortgage and which repayment method suits you will depend on your individual circumstances. And while almost all estate agents in Italy will be happy to put you in touch with a mortgage lender, you should probably consider using an independent mortgage broker to help you find the best deal.

Italian Mortgage Information : Setup Costs

Here is a breakdown of the typical setup costs for an Italian Mortgage :

• Bank's arrangement fee - typically around 1% of the loan amount (deducted from the loan)


• Bank's completion costs - typically between €100-€160 (deducted from the loan)


• Valuation fee – approximately €200-€250, payable directly to the local surveyor (Geometra)


• Mortgage registration tax – if the property will be the main residence, then the tax will be 0.25% of the loan amount. If the property is a second property, the tax will be 25 of the loan amount.


• Buildings insurance – this is a one-off fee and typically the lender will insist you take cover with their chosen provider. However, this only meets their basic requirements. For more comprehensive cover, further insurance will need to be taken out.

This completes our Italian Mortgage Information section.

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