The effort it takes for Spaniards to pay a mortgage is reduced by more than 20 points in 15 years

The effort it takes for Spaniards to pay a mortgage is reduced by more than 20 points in 15 years

2023-06-09 09:10:18

In the last 40 years, The housing market has undergone a great change since in 1981 as a result of the Moncloa Pacts what we know today as the mortgage market was born. At that time, both the official banks and the private banks began to grant mortgages. savings banks of each municipality and the interest rates by which they were governed the first loans signed in Spain were between 16% and 18% TIN. It was not until the 90s when these interests began to decrease due to the increase in the mortgage offer and the expansion of the market.

Specifically, in the 1990s interest rates reached above 16% TINaccording to data collected by the Spanish Mortgage Association (AHE) and now stands at 3.5% TIN, almost 13 percentage points below.

What were these high interests due to? During the 1980s and 1990s, in Spain, different reference indices were used, such as the Míbor or the IRPH, whose values ​​set the pace for mortgages. At that time they reached 18%. Currently, in fact, there are mortgages in our country that are still governed by some of these indicators, although they are already a minority.

However, if we look at the data since the entry into force of the Euribor, in 1999, the highest data was reached in July 2008 when it registered a 5,393%, to date its all-time high. In that year, according to INE data, the average rate at which mortgages were signed in Spain stood at 5.857%. Currently, the Euribor is the reference index for variable mortgages most used in Spain and in Europe.

“Now, a person who is going to take out a mortgage will surely sign his loan with an interest rate of around 3% TIN. This type may seem very high to us if we compare it with the 1% TIN mortgages that prevailed in 2021, but it is not even comparable to what there was 20 or 30 years ago, when most people had mortgages around 15% TIN”, says Colombelli. Regarding these high rates, the spokesman for the mortgage comparator iAhorro adds that “it is impossible for us to reach them currently, among other things because the laws that have come into force would not allow it.”

30 years ago, Spaniards spent 40% of their salary on housing

In the 1990s, banks also granted mortgages more easily, almost regardless of whether the client could pay the monthly installment without getting too much debt, but now the Bank of Spain requires financial institutions to only be granted loans mortgages to those users who do not exceed the established debt ratio. This means that those who are going to allocate more than 35% of their salary to paying for the house will not be able to apply for a mortgage.

We see this clearly reflected in the effort rates of the mortgaged depending on the year the loan was contracted. For example, a person who 1994 (first year of the historical series for which we have complete data) took out a mortgage, for an average amount of 42,599 euros, an interest rate of 10,416% TIN and an average term of 16 years would pay a total fee of 456.64 euros each month. This represented almost 40% of his salary, specifically a 39,9%.

If the mortgage loan had been contracted in the year 2007with the outbreak of the housing bubble, For a mortgage of 148,865 euros, with an interest rate of 5.242% and an average payment term of 28 years, he would pay a fee of 845.83 euros and his effort would skyrocket to 46,2%.

However, if you have contracted 2022 (last year for which there are complete figures) a mortgage for an average amount of 145,247 euros, with an interest rate of 2,058% and a term of 25 years, the monthly payment that would be paid would be 619.75 euros. This means that the effort required for this person to pay that mortgage is even less than what it was 30 years ago: it is reduced to 26,2% compared to 46.2% in 2007.

What is this about? Simone Colombelli details that “in 1997 and 1998 interest rates began to drop drastically, but this drop in rates was also accompanied by a drastic rise in prices and in 2007 we reached the maximum effort recorded, up to 46.2%, which this 20 points above what we have seen in 2022 despite the current rise in interest rates and the Euribor”.

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What will happen from now? “It is possible that when this year 2023 ends and we have all the complete data, we will see that this effort rises a bit, perhaps above the 30% because interest rates continue to rise and prices have not gone down much either,” says the iAhorro spokesman, who also qualifies: “However, we are now better prepared for a rate rise than 15 years ago.”

So, what is the best measure to alleviate this increase in the mortgage effort? Colombelli is clear about this: “if you take out a fixed mortgage, you limit the rise in interest rates and, therefore, the effort to pay the mortgage will be much greater in the first years of the loan. As life progresses, so does life, and that effort pays off. In the case of a variable mortgage, calculating the effort is more difficult due to movements in the Euribor, but it should be noted that increases in the Euribor usually come hand in hand with high inflation and economic times in which everything in general costs much more”.

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