Financial institutions have gone into “crisis mode”, and in the face of uncertainty about the course of the economy, rising inflation and interest rates have tightened the conditions for granting mortgages. Thus, according to the data of Trioteca, a digital platform that markets mortgages from 37 financial entities, so far this year the denial of loans to buy homes has shot up by 22.7%. “The poor can no longer mortgage themselves – admits Ricard Garriga, general director of the platform. Last year they passed right through the bank’s sieve; now they can no longer buy houses”. According to Idealista, the credit broker of the real estate portal, families who applied for a mortgage in February had an average income of 3,190 euros per month, but those who 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 banks to grant mortgages. “We were able to get mortgages where the fee reached 40% of the income, sometimes by providing guarantors or mortgaging another property. Now it’s 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 effort rate. “A mortgage will last for many years, so some banks are already calculating the interest rate with higher interest rates than the current ones, in anticipation of the European Central Bank continuing to raise rates”, adds Cubero.
Garriga points out that it is not easy to know which customers 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 covid it was those who worked in tourism or restaurant companies”. According to Idealista data, 80.7% of people who obtain a mortgage have an indefinite contract (5.5 points more), 14.6% are civil servants and only 4.7% are self-employed, while a year they were 9.4%. Of the people who apply 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 hurts entrepreneurs: according to Trioteca data, a year ago they received 1.3% of mortgages, and last month they only received 0.10%.
“Banks are more cautious because they learned a lot during the previous crisis,” explains Vicenç Hernández Reche, general manager of Tecnotramit, a company that offers commercial and legal services to financial and real estate companies. “If the mortgage is not paid, an eviction is very expensive and damages the bank’s reputation. So they control payment guarantees much more”.
Uncertainty about the crisis has led banks to demand a greater level of prior savings, which also leaves out many families. According to Idealista, in February of last year, 27.3% of the mortgages obtained exceeded 80% of the appraised value of the home, with 4.3% in which they exceeded 90%. Today only 17% exceed 80% of appraised value, and barely 0.4% exceed 90% of appraised value. Thus, those who applied for a mortgage through the portal in February had an average saving of 57,533 euros, but those who got it contributed an average of 103,400 euros at the beginning.
The increase in interest rates has forced families to buy cheaper flats, explains Garriga. According to proptech’s calculations, “having the same level of savings, the rate hike reduces by 40% the mortgage that an average family can assume paying the same fee as a year ago, and by 29% the price of the “property that you can buy”, he says. The firm’s clients “are now buying worse houses than the ones they were looking for a few months ago. But they hurry to close the operation for fear that the rates will continue to rise and in a few months they will no longer be able to pay it.”
In the same vein, data from Idealista indicate that in February the average mortgage obtained by its clients was 178,000 euros, 4% lower than the previous year, and the average house price that bought was 239,144 euros, 8% lower, although the customers who finally got the credit needed less financing than before (72% of the price of the flat) and the fee had dropped its weight to just one 24% of their income.
Many families have directly stopped looking for apartments due to uncertainty about how the crisis will affect them or because inflation has eroded their real incomes, and consequently fewer mortgages are applied for. Lázaro Cubero explains that Tecnocasa had 181,500 housing requests in February, 10% less than in February last year, in its portfolio of 10,000 flats.
The real estate company has done a study on how the rate hike will affect the demand for housing and predicts that, in the worst case scenario, if interest rates reach 5.5%, the purchase demand will drop by 17.25 % compared to the situation a few months ago, when rates were at 2.5%. The drop in potential buyers will be greater in cities where prices are higher, such as San Sebastian (27.6%), Palma (27%), Barcelona (24.4%) and Madrid (23.9%), and lower than 10% where housing is still affordable, such as Lleida, Zamora, Ávila or Huelva.
