The fall in mortgages certifies the end of the ‘boom’

2023-09-11 12:38:51

During In the first half of this year, 266,350 mortgages were signed, of which 76% had a home as collateral, according to the National Institute of Statistics (INE). The data recorded in the first half of 2023 are very similar to those of 2021 and 2019, the last year before the outbreak of the covid pandemic, although 14% lower than those of the same period of 2022, a record year in the number of sales.

Most of the experts agree that the numbers for the first semester, although they are lower than those of 2022, are not bad. “It is one of the highest figures since 2011. Taking the data with perspective, we are not so bad,” he says Richard Garriga, CEO of Trioteca, one of the most important mortgage brokers in Spain. However, the professor at the University of Barcelona (UB) and one of the leading real estate economists Gonzalo Bernardos considers that the mortgage lending firm “is sunk” and that “the banks are not meeting their objectives.”

From the Spanish Mortgage Association (AHE) they do not make a “positive reading” of these data. “We come from a growth scenario that was not sustainable, but we are surprised that the falls registered in recent months have been so large because the current macroeconomic context is solid,” he points out. Leyre LopezAHE analyst.

Rising interest rates, the cause

Santiago Carbon, director of Financial Studies at Funcas, the economic research center of CECA, the association that represents the old savings banks, affirms that the fall in the granting of mortgages is due “mainly to the increase in the cost of loans due to higher interest rates interest”, in an environment where, on the other hand, banks are “trying to keep delinquency to a minimum”. Garriga also thinks that the rise in the Euribor is acting as a brake on home purchases, and adds: “A rise in rates can be an accelerator or a decelerator for property sales, although this time it is being the second.”

Banking sources also indicate that this contracting in the signing of mortgage loans is due, to a large extent, to the fact that families “They are now more prudent and the banks are also acting in a responsible way when granting loans to avoid risks”. The same sources point out that the demand, after the rise of the Euribor from 0% to 4%, is much more limited than months ago.

Bernardos predicts that, “in the best of cases”, 400,000 new mortgages will be signed in all of 2023. “With the rise in rates, the banks have a guaranteed income statement. For this reason, in their mortgages, they do not want them to default and they have increased their prudence criteria. However, it would not surprise me if, if this continues like this, they are more flexible towards the end of the year,” he points out. Although from Funcas they do not make an exact forecast, they do convey that this year they expect “a significant drop compared to the previous one”, if the economic uncertainty persists and interest rates continue to rise.

The economist from the University of Barcelona points out that this year there will be drops in the number of housing transactions and in prices because he notices a difference between the offer prices at which properties are placed on real estate portals and the amounts at which that the sales are closed. “With the rise in rates, a buyer can pay much less. It is impossible for the market to remain immobile in this situation,” he adds.

The director of Financial Studies at Funcas, however, expects house prices to fall in 2023, albeit very slightly. “It could fall 1%; although, in any case, Spain is not a single market. In some of these markets, such as the main urban centers, housing prices are not falling“, highlights.

Improve conditions

During the first half of the year, many Spaniards have taken advantage of the situation to try to improve the conditions of their mortgages. In fact, according to Garriga, in recent weeks, in Trioteca, more than half of the loans that are closed are changes in already existing loans. “We see a spectacular upward trend of people changing their mortgage”indica.

Most of these modifications are registered with the National Statistics Institute (INE) as a new mortgage. Bernardos explains it: “Most banks, when they make an offer to improve the conditions, ask to cancel the existing credit and open a new one to avoid working without a return.” The economist estimates that, between January and June, 40,000 new mortgages have been closed, which are actually refinancing existing loans.

Most of the new mortgages signed between January and June continue to be at a fixed rate, although the variable is recovering ground, according to the INE. Because? This public body classifies mixed mortgages of this type, which consist of five or 10 years at a fixed coupon and from that date the installment is referenced to Euribor and a differential.

The CEO of Trioteca maintains that, for the moment, mortgages continue to be granted at rates lower than the reference rates. On average, during the month of August, they closed mortgage loans at a fixed rate below 3% and mixed at 2.5% during the first years and with a differential of less than 1% with the Euribor afterwards.

In addition to improving their conditions, many mortgage holders choose to partially or totally amortize their loans. Thus, banking sources explain that, during the first semester, they have detected a “strong amortization.” Since August 2022, according to the Bank of Spain, the Spanish mortgage outstanding balance has registered falls and, In July, for the first time since 2006, the volume fell below 500 billion of euros.

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The last minimum in the mortgage balance was registered in 2020, at just over 504,000 million. However, after the outbreak of the health crisis and in the heat of interest rates around zero and with the Euribor in negative, Spanish families increased their mortgage debt above 511,000 million, a trend that has occurred return during 2022, translating into a drop in the outstanding balance also during the first half of 2023.

The Spanish Mortgage Association It is not expected that the outstanding balance will suffer large declines, but it does expect that it will continue on its downward trend.