The outstanding mortgage debt held by families for the purchase or renovation 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 pay off the their mortgages with the savings accumulated during the pandemic to avoid the rise in Euribor.
Noelia Suárez, director of Hipotecas.com, the digital channel of Unió de Crèdits Immobiliaris (UCI, a company with the participation of Banco Santander and BNP Paribas that markets its own mortgages), pointed out that “partially repay the mortgage or cancel keeping it is a very effective strategy to avoid the increase in the fee for those who accumulated savings during the covid”, since with bank deposits they cannot achieve a return that exceeds the Euribor, which has climbed to – on Friday by 4.155%.
Thus, according to UCI data, mortgage cancellations are at record levels not seen since 2008: 147,465 mortgages were canceled in the first four months of the year, 23% more than in the same period of 2021. 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 the last year. On the GDP, its weight has been reduced to 34.7%, from the 40.9% it came to represent at the end of 2021, with the boom that followed covid.
Paying off the mortgage early, however, is a strategy that is only available to families who have savings, while the thousands who live “to the day” choose to renegotiate the mortgage, in most cases by changing banks . Ricard Garriga, founder and general manager of Trioteca, a digital platform that markets mortgages from 37 financial institutions, points out that currently 70% of its customers are not looking for a mortgage to buy a flat but to cancel the one they already have. “In recent years of negative rates, many variable mortgages were signed with a differential of 1% over 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 receive an avalanche of calls from scared people.” Trioteca, says Garriga, is getting these customers mortgages at a fixed rate of 2.88% or mixed at 2.29%. “Some banks are willing to offer rates at a bargain price to attract good customers,” he says.
The key is the financial capacity of the customers: many cannot change mortgages because even with rates lower than the Euribor, the fee would exceed 35% of their income. In this the banks are particularly 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 it exceeding 35% of their income With the current quota, which has risen to 1,079 euros, those families have to pay 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 borrowed does not exceed 80% of the appraised value of the home, a requirement that is more easily met by families looking for a mortgage to replace a previous one, already that after years of paying they usually have reduced the debt and the increase in house prices in recent years makes the ratio more favorable to them 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 of young people guaranteed by their parents), compared to 9.1% of the previous year. In 2013, they exceeded 17%. “Today, financial institutions are more cautious – acknowledges Noelia Suárez, from UCI-. We want the mortgage to contribute to making the client’s life project a reality, not to be a problem for him.”
The fee increase, however, is a problem for thousands of families. The Spanish Mortgage Association points out that the mortgage arrears ratio of families has remained stable in the first quarter (the latest data available) at 2.3%, but it has started to rise in consumer loans. The AHE attributes the containment of arrears to the fact that the level of employment has not deteriorated. However, he admits, it will be higher today because rates had not yet risen that much in the first quarter. In addition, with bank accounting regulations, the reclassification of a non-performing loan can take months.
Garriga remembers that the rise in the Euribor has not reached a ceiling, so the current trend of switching from old variable mortgages to new, fixed or mixed mortgages will continue. “There are 4.1 million families with variable mortgages who can save by switching mortgages,” 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 creditor’s registration. “Many banks prefer to sign a new mortgage, instead of modifying the old one”, justifies Garriga.
