Banks are being more agile when it comes to refinancing private mortgage loans on their own than the mechanism promoted by the Spanish Government to prevent families with problems from being in serious difficulty due to rate hikes of interest Since the beginning of the year, the renegotiations of home loans agreed bilaterally between individuals and their institution have quadrupled those of the Spanish Government’s plan, full of requirements and of limited concreteness if compared to the number of people that request it.
According to the latest data published by the Bank of Spain, between January and October bank loans were refinanced for the purchase of housing for 3,769 million euros, almost double the 1,910 million in 2022 as a whole. It is a strong increase that responds to the rise in interest rates and, with this, to the increase in the mortgage rate of variable loans.
This volume of bank renegotiations is much higher than the nearly 820 million euros which, according to the Bank of Spain’s calculations, is the life preserver agreed a year ago by the Spanish Government and the banks to prevent families from drowning with the increases in the mortgage rate. This year, the plan has covered household incomes of less than 29,400 euros, but from January the limit will rise to 38,000 euros, so that it will reach more deeply the middle class, which the Ministry of ‘Economy.
The relatively small amount of refinancing under the new code cannot be considered a failure, but the other way around. The economy, as the banks themselves acknowledge, has behaved better than expected and, if there have not been many mortgagees in search of the Spanish Government’s lifeline, it has been because things have not gone so badly for them. The banks, initially reluctant to the code of good practices because of the risk of having to make provisions, have agreed without problems to extend it to 38,000 euros.
However, the Spanish Government’s mechanism suffers from the reduced percentage of applications that end up being successful, barely 12%. Between January and October there were 54,928 mortgagees, 0.9% of the 6.2 million in Spain, who requested help for a loan volume of 6,839 million euros, 1.5% of the whole, equivalent to about 450,000 million.
Of all the requests, only 6,941 were successful. 57% of those already processed were denied for not meeting the requirements, among which there is that the home has a value of less than 300,000 euros or that the mortgage fee exceeds 30% of the household’s income. There were also 21% of cases in which the customer gave up.
This help from the code of good practices mainly consists in the granting of a grace period of one year in which the mortgage is frozen and in the reformulation of the quota extending the term of validity of the loan by seven years.
At first, the Spanish Government publicized the new plan and put the number of potential recipients at one million people, but it already recognizes that the scope is much lower. It now considers the figures of the Bank of Spain as good, which places the universe of potential beneficiaries at 549,000 and calculates that, with the expansion of the plan to incomes of 38,000 euros, 100,000 more will be able to join.
In her appearance on Monday to announce the expansion of the code, the same First Vice President and Minister of Economy, Nadia Calviño, alluded to the refinancing that banks do on their own as a factor to reduce the pressure on mortgagees . “It is necessary to add the relief measures that the entities provide”, acknowledged the minister.
For banks, increasing the scope of the code of good practices is not “strictly necessary”, as explained by the director general of the Spanish Banking Association (AEB), María Abascal. The thesis is that the behavior of customers has been better than expected and that, in this context, the entities have the capacity to respond to their needs. “For us, success is that whoever has a problem can have a solution”, he said.
Although they do not consider it necessary, the banks have agreed to raise to 38,000 euros the income likely to benefit from the code of good practices. Unlike what happened a year ago, they now do not fear a scenario in which they are forced to make heavy provisions to cover themselves from the increase in bad loans. The scenario of a decade ago, when renegotiations were around 10,000 million euros per year, is far from over.