Spanish households are betting hard on lowering their mortgage as much as they can, now that interest rates are rising, and many are using the savings they have kept from the pandemic. This thesis has already been defended by the banks in their recent results presentations and is confirmed by the latest data from the Bank of Spain, which show an amortization rate unknown since 2009, capable of reducing the volume of mortgage debt to the lowest level in eighteen years.
In June, the outstanding balance of private mortgage debt was 501,577 million euros, 13,352 million less than the same month in 2022. The figure implies a reduction at an average rate of 1,112 million euros per month, an unknown speed since 2016, when the country was recovering from the economic crisis and the housing market was returning to normal.
The current debt, moreover, is the lowest since 2005, when it stood at 450,135 million euros and was preparing to lead a rapid escalation. It was a time of real estate speculation, in which households began to take on debt without sufficient control, reaching, just five years later, in 2010, the historic maximum of 656,854 million.
From that moment, after the bursting of the bubble, the debt began to decrease little by little, until it was 23% below that level in 2023. What households now owe to the bank for their housing is equivalent to 36% of GDP, which is 1.36 trillion, while in 2010, when the national wealth was 1.07 trillion, it was 61%. A full-fledged deleveraging.
The outstanding balance data for this debt includes both repayments and new loans, but it is possible to know the former if each year the amount of the mortgages just taken out is subtracted from it. The result is that, in the twelve months before June, households reduced the principal of their mortgages by 70,652 million euros, a figure that had not been achieved for fourteen years, in 2009, when 72,997 millions of brick debt. In other words, families are now paying off their mortgages at a monthly rate of 5,887 million euros. And the debt would go down more if it weren’t for new mortgages being signed at a rate of 4,775 million euros per month.
The explanation for this eagerness to lower the mortgage as much as possible lies in the rise in interest rates, which have already risen to 4.25% and have placed the Euribor at 4.15%. Variable rate loans have become significantly more expensive and present themselves as one of the main threats to the domestic economy. According to the simulator of the Spanish Mortgage Association, a debt of 150,000 euros for 25 years at Euribor plus 1% has gone from having a quota of 565 euros before the rate hikes to 890 euros now.
In the latest report on the financial situation of households and companies, the Bank of Spain states that, in the absence of an attractive return on bank deposits, individuals have preferred to take out a mortgage. “The increase in the differential between the cost of live loans at variable rates and the expected profitability of less risky investments has favored an increase in mortgage amortizations,” he says. “This, together with a lower generation of loans, has resulted in a reduction in outstanding bank credit balances”, he adds.
Another piece in this great deleveraging of families is the signing of new mortgages, which is falling back because the cost of credit increases. Between June 2022 and June 2023, new operations have amounted to about 57,300 million, when throughout 2022 they were 65,220 million, and “since last summer” there has been a “noticeable decrease” in the “new financing”, assures the Bank of Spain.
By historical comparison, the anomalies of the housing bubble years are even more striking now. In 2006 alone, the Spanish signed mortgages for more than 170,000 million euros, and between 2005 and 2007 they were burdened with a debt of almost 470,000 million.
That experience may be one of the reasons for the caution with which many mortgagees now respond to interest rate hikes. Both the CEO of Santander, Héctor Grisi, and that of BBVA, Onur Genç, assured separately in their respective half-yearly results presentations that in Spain consumers are reacting to the change in monetary policy by accelerating mortgage amortization. In the case of BBVA, credit investment fell by 1.4% in the country because these amortizations exceed the volume of new credits.
The CEO of CaixaBank, Gonzalo Gortázar, considered that, with the information available to the bank, the Euribor should tend to fall in the coming months. Its differential remains high with respect to the remuneration of bank deposits, located in June at an average of 2.22%, according to the Bank of Spain.
Not all the money has gone, of course, to reduce the mortgage charge. Since the beginning of the year, savers have allocated 29,000 million euros to investment funds, which already accumulate 335,000 million in Spain, according to data from the association Inverco. In addition, many individuals have also taken the opportunity to buy Treasury bills, with returns of around 3.6%, still considerably higher than those offered by bank deposits.
