2023-10-16 03:22:36
There was a time, during the years of the real estate “boom” of the first decade of the century, when in a more or less hyperbolic way – or not so much – it was said that whoever went in to request a mortgage from a bank left with a loan. for 100% of the appraised value of the home, plus extra money to renovate it and, if he insisted, with another extra money to buy a new car. But the Great Recession of 2008 ended those times. The financial “crack” of Wall Street that later became a deep global economic crisis from which scars still remain uncovered thousands of mortgages that were impossible to pay due to the facilities given by the banks to grant mortgages to less creditworthy clients and left the entities with a problem of delinquency that regulators tackled by means of “loan to value” (LTV) at 80%. LTV is the percentage of a home’s appraised value that a bank finances with a mortgage. And, when the crisis arrived, the regulatory authorities understood that the appropriate thing was to set it at 80%. Thus, from almost 18% of loans that exceeded this limit in 2006, it went to just over 10% in 2009, although then the percentage rose again in 2013 and then began a downward path that has now worsened until reaching minimums in twenty years.
According to the data collected in the Bank of Spain’s summary of macroeconomic indicators at the beginning of October, the percentage of new loans for home purchases at a “loan to value” greater than 80% has stood at 6.3%. , the lowest level in the last twenty years. At the beginning of 2022 the percentage exceeded 8%, according to statistics from the regulatory body.
Reasons
For José Antonio Salomón, head of the Research area at Gesvalt, a real estate consulting, valuation and appraisal company, there are several reasons that explain this drop. First of all, Salomón cites the “greater prudence on the part of financial entities with the aim of limiting their exposure to risk.” With the interest rate increases approved by the European Central Bank (ECB) to stop inflation, the cost of loans has become more expensive and financial institutions, by limiting the amount they lend, also reduce the amounts that can potentially leave them families owe in case of financial difficulties now that the rise in prices is putting more and more pockets in their pockets.
The Gesvalt manager also cites that the tightening of financing conditions “limits access to demand with less savings capacity”, to which banks are more inclined to lend more money.
Gesvalt, which includes this drop in new loans with an LTV greater than 80% in its report on housing price behavior for the second quarter of the year; He also attributes the fall of this type of mortgages to the dynamics of the mortgage market itself. “As we are observing in our latest reports, the evolution of the volume of mortgages granted reflects greater contractions than those of sales,” explains Salomón. And, the smaller the total number of loans, the smaller the amount of this type of loans.
Purchases without financing
The fall in mortgages has to do not only with the decline in home buying and selling, but also with the fact that more and more homes are being purchased without financing. The majority of current buyers (54.1%) pay the total cost of the property without resorting to a loan, according to data managed by the General Council of Notaries, although Gesvalt limits this percentage to 30%. So far this year, the percentage of purchases with financing has moved around 42-45% and it was in February when the most sales were closed without a mortgage, almost 60% (57.5%). This change in trend has to do with the rise in interest rates, which has led many with financial capacity to buy in cash to save interest on financing. However, other factors such as the money made from the sale of a previous home, from an inheritance, from an endowment or from purchases made by investors or funds would also explain this paradigm shift.
Despite the fact that financial institutions have contained the money they lend to families to buy a home – the average amount of mortgages established fell by 2.6% year-on-year in July, to 143,412 euros, while the capital lent decreased by 20 .9%, reaching almost 4,191 million euros, according to the INE-, the truth is that the rise in interest rates is strangling the finances of many households. The rise in the Euribor, which has already surpassed the 4.2% barrier, is causing a paralysis of sales and also mortgages because it is pushing family finances to the limit. Mortgages must allocate 38.9% of their gross annual disposable income to pay the installments during the first year, the greatest effort recorded since mid-2011, according to data from the Bank of Spain. In the third quarter of 2007, before the bubble burst, the historical record was set with 9.45 years of gross salary to purchase a home. On the contrary, the minimum -2.96 years- occurred in the first three months of 1987, the year from which the Bank of Spain has records of this indicator.
#Mortgages #exceed #appraised #home #fall #twentyyear #lows