2023-07-18 00:18:07
The mortgage market has taken a 180 degree turn in the last year. Mortgaging is now more expensive. Not only because the price of housing is higher, but because it costs more to borrow money from a bank. A year ago, the European Central Bank (ECB) began a more restrictive monetary policy by raising rates for the first time in 11 years. Which is still going on. This has been reflected in the price of new mortgages. In fact, Mortgage interest already accounts for 50% of the total amount of the loan.
According to Tecnocasa’s 37th Housing Market Report, people who have taken out a mortgage in the first half of this year will have to face much higher interest, which will represent 50% of the loan amount. It should be noted that in the mortgages constituted last year, the total interest was 39% of the loan. The authors of the report point out that the current legislation allows renegotiating the interest rate assuming a low cost depending on whether a mortgagee has a better offer from another bank, “this will not be the case for those who have had difficulties obtaining their mortgage current”.
But why have interest rates increased so much? The ECB has placed the price of money at 4%. This percentage, which has not been seen since June 2000, makes banks obtain more expensive money and also place it on the market at a higher price. In other words, it is more difficult for financial institutions to collect money, so they transfer this higher cost to citizens. And that is being seen in the average mortgage rates, although the Bank of Spain has already warned that the rise in mortgage rates has not been fully transferred, that is, much higher interest will be seen.
In the first half of 2023, according to Tecnocasa data, the average rate on variable-rate mortgages constituted during the first half of 2023 reached 4.92%, while the average rate for fixed-rate mortgages was 3 .25%, almost 1.7 percentage points less. The behavior of interest rates for both types of mortgage means that for mortgages constituted during this first half of 2023 the difference between the monthly installment of a fixed-rate mortgage and one at a variable rate has widened. In other words, those mortgaged at a variable rate pay more on average than those with a fixed rate.
During the second semester of 2022, this difference was 23 euros in favor of variable rate mortgages, while during the first half of 2023 it became 60 euros. Both types of mortgage show significant year-on-year increases in installments. In fixed-rate mortgages, the monthly payment has risen by 28%, going from 436 euros in the first half of 2022 to 560 euros in the first half of 2023. For variable-rate mortgages, the rise has been much higher. The data from Tecnocasa mark an increase of 46%, going from 423 euros to 620 euros.
From the company they point out that “the current situation has caused a significant rise in the cost of mortgages constituted in the first half of 2023.” However, if one considers the long-term costs, this increase is even higher.
These interests and this new mortgage market are making people opt for mixed mortgages. From 2015 to the first half of 2022, there was an unprecedented increase in fixed-rate mortgages. As of that semester, the trend changed notably in favor of mixed-rate mortgages, above all, and also variable-rate ones.
During the first half of 2023, fixed-rate mortgages fell 14 percentage points, which means that 53% of new mortgage loans are fixed-rate. For their part, compared to the previous semester, variable-rate mortgages have remained at 19%, while mixed-rate mortgages have more than doubled (from 14% to 30%).
The reason to explain this change is the rise in the Euribor. The index has gone from a value of less than 1% (July 2022) to 4.007% (June 2023). In this scenario, and with the expectation of a future drop in the Euribor in the short term, “the percentage of families that take out fixed-rate mortgages at a time when rates are higher is lower, while fixed-rate mortgages mix become a much more attractive alternative”.
Despite this increase in mortgage costs, credit institutions continue to apply mortgage orthodoxy, since the ratio between the monthly mortgage payment and the monthly income of the mortgagee continues to be within the 31% / 35% range that it is the one that has been observed since 2008. This percentage is similar to that published by the Bank of Spain.
The annual theoretical effort data published each quarter by the agency and which takes as a reference the savings and disposable income figures from the National Institute of Statistics (INE) suggests that Spaniards who bought a home in the first quarter of this year allocate a 38.2% of your annual income available to pay mortgage installments.
Economy
The current economic situation and the more restrictive monetary policy make buying a home increasingly difficult. To this equation must be added the high inflation […]
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