The Spanish government agreed with the country’s banks on a package of benefits for poor and lower-middle-class households, which are affected by the rise in interest rates in the Eurozone and are facing soaring mortgage repayments; This was announced by the media in the country today (Tuesday).
According to estimates, the agreement will be valid for about one million households in the country, and it was formulated at the end of two months of negotiations. It is part of a series of measures taken by the Spanish social-democratic government to help residents deal with inflation and its consequences. The measures are expected to be approved today by the government cabinet, but still require the approval of the European Banking Authority (EBA) because of the impact on banks’ balance sheets and their debt.
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In Spain, about three-quarters of the mortgages in the country are linked to the prime rate, where in many cases it is the terms of prime plus 1%. This caused in recent months, with the rise of the prime interest rate when the European Central Bank raised the general interest rate in the economy from negative values to 1.5%, a jump in mortgage repayments. A similar phenomenon has occurred in most economies that deal with inflation by raising interest rates. The European Central Bank is expected to announce another increase of 0.75% soon, and there are predictions that interest rates in the Eurozone will climb to 4%.
A discounted route with a longer layout
According to the emerging agreement, the poor households in Spain, with an annual income of less than 25,200 euros, will be able to move for five years to a “discounted route” where they will pay a premium less than 0.1%, instead of the existing route they are on, at no cost. They will also be able to extend the mortgage period for another seven years, without additional costs. As for the lower middle class, those with an annual income of less than 29,400 euros, they will be able to make a change from a prime interest track to a fixed interest track at no cost. Fines for changing the route or for early payment will be canceled. According to reports, they will also be able to “freeze” the increase in mortgage repayments for a certain period.
The final details have not yet been published, but this is a voluntary agreement with the banks in the country, and not a binding legislation. This, in contrast to the taxation of excess profits of the banks by the Spanish government, which caused a sharp conflict between the government and the banking sector. Spain is the only Western European country that currently intends to tax the excess profits of the country’s banks as a result of the increase in interest rates by the European Central Bank, and intends to raise about 3 billion euros from this in the coming year. The new tax will be imposed on fees charged by banks and on income from the interest margin between deposits and loans.