The outstanding mortgage debt that families maintain for the purchase or rehabilitation of housing has been reduced by 10,185 million in nine months, according to the latest data from the Bank of Spain, due to the effort that families are making to repay their mortgages early with savings accumulated in the pandemic to avoid the rise of the Euribor.
Noelia Suárez, director of Hipotecas.com, the digital channel of Unión de Créditos Inmobiliarios (UCI, a company owned by Banco Santander and BNP Paribas that sells its own mortgages) pointed out that “partially repaying the mortgage or canceling it is a very effective strategy for avoid raising the quota for those who accumulated savings during the covid ”, since they cannot achieve a return that exceeds the Euribor with bank deposits, which has climbed to 4.155% on Friday.
Thus, according to UCI data, the cancellation of mortgages is at record levels that have not been recorded since 2008: in the first four months of the year, 147,465 mortgages have been cancelled, 23% more than in the same period of 2021. Of the In the same way, the Bank of Spain points out, the outstanding balance of household mortgages stood at 503,037 million at the end of the first quarter, 1.9% less than last year. Regarding GDP, its weight has been reduced to 34.7%, from the 40.9% that it came to assume at the end of 2021, with the boom that followed the covid.
Paying off the mortgage early, however, is a strategy that is only within the reach of families that have savings, while the thousands who live “from day to day” are choosing to renegotiate their mortgage, in most cases changing banks. Ricard Garriga, founder and general director of Trioteca, a digital platform that sells mortgages from 37 financial institutions, points out that currently 70% of its clients are not looking for a mortgage to buy a flat but to cancel the one they already have. “In recent years with negative rates, many variable mortgages were signed with a differential of 1% over the Euribor,” he recalls. With these conditions, the annual update of an average mortgage of 200,000 euros, means an increase in the fee of 408 euros/month (4,900 euros per year). “Many families cannot afford it. The first week of every month we get a barrage of calls from scared people.” Trioteca, says Garriga, is getting these clients mortgages at a fixed rate of 2.88% or mixed at 2.29%. “Some banks are willing to offer takedown rates to get good customers,” he says.
The key is the economic capacity of the clients: many cannot change their mortgage because even with rates below the Euribor the fee would exceed 35% of their income. In this the banks are especially strict. “A year ago, an average mortgage referenced to the Euribor plus one point paid a fee of 671 euros per month, with which families with an income of 1,917 euros per month could obtain it without exceeding 35% of their income. With the current fee, which has risen to 1,079 euros, these families have to enter more than 3,000 euros a month for a bank to give them a mortgage.
Another of the bank’s requirements is that the amount lent does not exceed 80% of the appraisal value of the home, a requirement that is more easily met by families looking for a mortgage to replace a previous one, since after years of paying they usually having reduced the debt and because the increase in housing prices in recent years makes the ratio more favorable than when they signed it.
Thus, according to the Bank of Spain, at the end of the first quarter only 7.1% of mortgages exceeded 80% of the appraisal value (in general mortgages for young people guaranteed by their parents), compared to 9.1% in the year former. In 2013 they exceeded 17%. “Today, financial institutions are more prudent,” acknowledges Noelia Suárez from UCI. We want the mortgage to contribute to carrying out the client’s life project, not for it to be a problem for him”.
The increase in the fee, however, is a problem for thousands of families. The Spanish Mortgage Association points out that the household mortgage default ratio has remained stable in the first quarter of the year (the latest data available) at 2.3%, although it has begun to rise in consumer loans.
The AHE attributes the containment of delinquency to the fact that the level of employment has not deteriorated. All in all, he acknowledges, today it will be higher because rates had not yet risen that much in the first quarter. In addition, with banking accounting regulations, the reclassification of a loan at doubtful risk can take months.
Garriga recalls that the rise in the Euribor has not reached its ceiling, so the current trend of moving old variable mortgages to new ones, fixed or mixed, will continue. “There are 4.1 million families with variable mortgages that can save by changing their mortgage,” he says. Paradoxically, the INE data reflect a decrease in changes in the registration conditions of mortgages, as well as in novations or changes in the registration of the creditor institution. “Many banks prefer to sign a new mortgage, instead of modifying the old one,” Garriga justifies.
