2023-08-21 12:11:12
The rise in interest rates and the new policy of banking entities in housing financing are causing a very marked growth in contracts with mixed interests. So much so that its market share has doubled compared to last year, according to the latest report on the matter from the Spanish Mortgage Association (AHE), of which the main financial institutions in Spain are members.
Mixed types, as the name suggests, are a mix of variable and fixed types. In short, these are loans that are subject to an initial fixed interest in the short (between one and five years) or medium term (between five and ten years) and the rest corresponds to a variable one. As the AHE itself explains, “this type of loan stands as an alternative for those consumers who want to ensure a fixed rate during the initial years of the loan in a context of rising interest rates, trusting that rates will evolve favorably in the future.” ».
Therein lies the client’s great dilemma: any long-term contract will presumably see the circumstance of high and low rates throughout the life of the credit. The fixed guarantees a stable but more expensive monetary quota in contexts of low rates, while the variable, in this situation, benefits and it is cheaper, although it becomes, as it happens now, a sword of Damocles when the price of money goes up and the mortgage payment becomes more expensive without a rate. The mix allows you to pay a fixed amount in the initial stage, when more interest is paid -and especially at this time when the Euribor is rising-, and hope that, after that time, the price of money has gone down and the rates variables are then more beneficial.
The mixed rates represented at the end of May of this year, the latest data recorded by the AHE, 32.1% of all mortgage contracts, when, at the end of 2022, they only reached 15.3%, that is, close to the half. The strength of this modality has been to the detriment, above all, of fixed-rate contracts, which were the star during the years when the price of money was at zero per cent. percent because they implied more returns for the bank than the variables (which were in tatters), although they also benefited many clients who were able to obtain a fixed rate at a very competitive price. Fixed-rate contracts, which in 2015 were equivalent to 5.7% of the total, reached 61% in 2022. In May 2023 they were at 45.6%.
The variables, which in 2015 were 62%, are at the May average at 24.6%, almost one point more than in 2022, because with the rise in interest rates to 4.25%, the bank is betting on them by reporting higher income.
Prices
The strength of the mixed-rate contracts has its counterpart in the price, since they are currently the most onerous. Thus, they stand at 4.37% at the end of May, well above the 3.2% of those with the fixed rate, and also higher, although to a lesser extent, than the variable ones, which are at 3.8 %. In all three cases, the increase compared to the end of 2022 is considerable, since at the end of that exercise the mixed ones were at 2.81%variable, at 1.91% and fixed, at 1.76%.
Doubtful real estate assets continued to decline in the first quarter of 2023, “although at lower rates than in previous quarters and subject to upward risks due to the economic and monetary effects of inflation,” according to the AHE. In the residential portfolio, the doubtful loan ratio remained at 2.3%, barely one hundredth above the value registered in the previous quarter and 0.6 percentage points below the rate of a year ago. For its part, the doubtful loan rate for real estate activities improved from the 3.8% observed in the fourth quarter of 2022 or even 4.3% in the first quarter of 2022 to 3.4% in the first of 2023.
The rise in interest rates causes the brake on mortgage operations
The AHE observes a change in the trend in the mortgage market as the increase in the cost of credit advances. Thus, the data relating to the first four-month period of 2023 show that an average of 5,000 fewer mortgage operations were registered per month in relation to the same period of 2022. In this way, activity in the sector has gone from registering just under 45,000 annual contracts at the beginning of the year to place its statistics last April below 36,000. In relative terms, the variation has translated into a 9.5% drop in the number of operations and 5.3% in the amount granted to obtain the mortgage loan.
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