2023-11-26 17:34:48
The late payment of the mortgages remains contained, despite the brutal rise in the Euribor caused by the increase in official interest rates by the European Central Bank (BCE) to combat high inflation. Loans for the purchase of a home, remember the Bank of Spainare the last thing that citizens stop paying: they use savings and benefits and do not stop paying the contributions until past two years on average since they have suffered a notable drop in their income, usually due to the job loss. This explains why defaults are in low levels In historical comparison, very far from the maximum of the 6.28% from March 2014despite rising slightly from representing 2.33% of the mortgage balance in March to 2.44% in June. But this reality hides notable differences: lower income households they have the doble default rate that richest families.
According to data from the Bank of Spain, the 20% of households with lower gross income (less than 26,695.09 euros per year) recorded a drop in its mortgage delinquencies from 3.69% in December 2021 (when the ECB began to tighten monetary policy) to 3,27% from last June. But despite the decrease, they register a default rate that is double that of the 20% of households with the highest income (more than 40,775.85 euros annually), in which it fell from 1.99% to 1,63%. The data, thus, confirms what is intuitive, the less income, the more payment difficulties: 3,12% of late payments in households of between 26,695.09 and 30,735.5 euros of annual income, 2,86% in those between 30,735.5 and 34,728.27 euros, and 2,44% in those between 34,728.27 and 40,775.85 euros.
All family groups, thus, have suffered a increase in their fees monthly average mortgage rates between 19% and 21% from the end of 2021 until last June, 453 a 542 euros In the case of the lowest incomes and 716 a 869 euros in the highest ones. However, the impact of these increases on family finances has been uneven depending on their economic level. The payment of mortgage payments has gone from absorbing 23.22% of the gross income of the lowest-income households in December 2021 to 26,23% last June, while in the wealthiest families the increase has been 17.14% to 19,66%. That is, it is confirmed that the richer is home, more margin has to face the rest of your expenses once the mortgage has been paid.
Vulnerability indicators
The data also indicate that the weight of mortgage payments on the income of all household groups is below the threshold which is considered “prudent” (less than 30%). The Bank of Spain has not detected “alarm signs” in that variable in a generalized way. Being an average, however, implies that yes there are families mortgaged above of that level. And taking into account that the lower income households are those with a rate closest to the barrier (26.23% compared to 30%), it is foreseeable that in this group there will be a bigger number of families in a financial situation most vulnerable and with a higher risk of default.
Another indicator in the same direction: the 40% of lower income households they only assume close to the 11% of the balance total mortgage loans, due to their lower access to loans due to their lower level of savings to pay the down payment (banks normally require the buyer to contribute 20% of the value of the property), as well as the lower real estate prices that they can afford to acquire. However, their weight in the nearly 11,000 million euros of mortgages dubious collection (non-payments greater than 90 days or other subjective characteristics that make non-payment probable) is 16%higher than what would correspond to it according to its weight in the total credit.
Rise in defaults
This older financial weakness makes low-income households more vulnerable to “some deterioration in credit quality is expected” (read, increase in delinquency) that the Bank of Spain foresees. In its recent financial stability report, it noted that the “favorable evolution of the working market and of the economic activitytogether with the moderation of inflation, has resulted in a notable income recovery of households in the first half of the year.” This is what explains why mortgage delinquencies have continued to decline. However, he also warned that, although the average balance type mortgage has already risen since 1.1% from the end of 2021 until 3.5% September, “it is expected a greater transmission of the increase of (reference) interest rates to the cost of households’ outstanding debt, which would contribute to the increase of the proportion of homes indebted with high financial burden“.
The institution, thus, estimated that slightly less than one third of mortgages variable rate still has to face a review of your quota of more than one porcentual point (plus the differential set in the contracts) between June 2023 and June 2024. And he warned that an increase of five percentage points in the Euribor (somewhat higher than that registered since December 2021), completely transferred to credit, could increase the number of indebted households in a vulnerable situation (interest payment greater than 40% of income) to represent 14.6% of the total (1.63 million families).
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