Financial institutions have gone into crisis mode, and given the uncertainty about the state of the economy, the rise in inflation and interest rates have toughened the conditions for granting mortgages. Thus, according to data from Trioteca, a digital platform that sells mortgages from 37 financial institutions, so far this year the denial of loans to buy homes has shot up by 22.7%. “The poor can no longer get a mortgage,” acknowledges Ricard Garriga, general director of the platform. Last year they just passed the bench sieve. Now they can no longer buy a house”. According to Idealista Hipotecas, the real estate portal’s credit broker, the families that applied for a mortgage in February had an average income of 3,190 euros/month, but those that got it had an average income of 4,051 euros.
The change is even more drastic because until last year the situation was the opposite: there was a commercial war between the banks to grant mortgages. “We could obtain mortgages in which the installment reached 40% of the income, sometimes providing guarantors or mortgaging another property. Now it is impossible ”, adds Garriga.
Lázaro Cubero, director of the Analysis department of the Tecnocasa real estate network, acknowledges that “now the banks are inflexible with the percentage of income that the fee must represent, which cannot exceed 30%.” But in fact, many clients are being asked for an even lower rate of effort. “A mortgage will last many years. So some banks are already calculating the effort rate with interest rates higher than the current ones, in anticipation that the European Central Bank will continue raising rates”, adds Cubero.
Garriga points out that it is not easy to know with which clients they will be stricter: each bank has its own formula. Cubero remembers that it is not a new phenomenon either. “In 2008 they did not give credit to workers linked to the real estate sector, and with the covid they were those who worked in tourism or restaurant companies.” According to Idealista data, among those who get a mortgage, 80.7% have a permanent contract (5.5 points more), 14.6% are civil servants and only 4.7% are self-employed, while a year ago they were 9.4%. Among those who ask for a mortgage through Idealista, 3.1% are pensioners and another 2.6% have temporary contracts… two groups that are practically not granted mortgages. Paradoxically, the new environment also harms businessmen: according to data from Trioteca a year ago they received 1.3% of mortgages, and last month they obtained only 0.10%.
“Banks are more prudent, because they learned a lot during the previous crisis,” explains Vicenç Hernández Reche, CEO of Tecnotramit, a company that provides commercial and legal services to financial and real estate companies. “If the mortgage defaults, an eviction is very expensive and damages the bank’s reputation. So they look a lot more at payment guarantees.”
Uncertainty about the crisis has led banks to require a higher level of prior savings, which also leaves many families out. According to Idealista Hipotecas, in February of last year, 27.3% of the mortgages it obtained exceeded 80% of the appraisal value of the home, with 4.3% exceeding 90%. Today only 17% exceed 80% of the appraised value, and only 0.4% exceed 90% of the appraised value. Thus, those who requested a mortgage through the portal in February had an average saving of 57,533 euros, but those who obtained it contributed an average of 103,400 euros down.
The increase in interest rates has forced families to buy cheaper apartments, explains Garriga. According to proptech calculations, “having the same level of savings, the rate hike reduces the mortgage that an average family can assume by 40%, paying the same fee as a year ago, and 29% the price of the property that you can buy,” he says. The firm’s clients “are now buying worse houses than they were looking for a few months ago. But they rush to close the operation for fear that the rates will continue to rise and in a few months they won’t even arrive.
In the same sense, the data from Idealista indicate that in February the average mortgage obtained by its clients was 178,000 euros, 4% less than that of the previous year, and the average price of the house they bought was 239,144 euros, a 8% lower, although the clients who finally obtained the loan needed less financing than before (72% of the price of the apartment) and the fee had dropped to only 24% of their income.
Many families have stopped looking for a flat directly, due to uncertainty about how the crisis will affect them or because inflation has deteriorated their real income, and consequently fewer mortgages are requested. Lázaro Cubero explains that Tecnocasa had 181,500 housing demands in February, 10% less than in February of last year, on its portfolio of 10,000 available apartments.
The real estate company has prepared a study on how the rise in rates will affect the demand for housing and anticipates that, in the worst scenario, if interest rates reach 5.5%, the demand for purchases will fall by 17.25% compared to to the situation of a few months ago when the rates were at 2.5%. The drop in potential buyers will be greater in cities where prices are higher such as San Sebastián (27.6%), Palma (27%), Barcelona (24.4%) and Madrid (23.9%) and less than 10% where housing is still affordable, such as Lleida, Zamora, Ávila or Huelva.
