The record rise in interest rates triggers mortgages signed for five years

2023-08-15 05:57:08

The average amount of the mortgages constituted in the month of May for the purchase of a home was 141,798 euros, 4.6% lower than that of May 2022. According to the Statistics National Institutethe average interest rate was 3.15% (2.79% for variable rate loans and 3.40% for fixed rate loans) and the average repayment term was 25 years.

That is what the statistics say, after in the month of May the number of mortgages constituted on homes rose to 33,398, 24% less than in the same month of the previous year, for an accumulated amount of 4,736 million euros, less than 27.5% as of May 2022. The Bank of Spain has just advanced the data on the capital lent for the purchase of a home to Spanish families in the month of June: 5,284 million euros, 18.01% less than in the same month last year.

He said George Bernard Shaw that “statistics is a science that shows that if my neighbor has two cars and I don’t own any, we each have one.” The appointment is relevant because when removing the statistical data from the Bank of Spain it can be seen that the amount of the mortgage loans granted with a repayment term of up to five years represents 42.42% of the total loaned, while that of loans for more than ten years, the most usual (so it seemed) represents 44.09%. Not everyone has a typical mortgage, let alone such a long cancellation period.

According to one of the mortgage simulators that can be used on the internet to get an idea of ​​the monthly cost of a loan for the purchase of a home, a mortgage of 142,000 euros (the one given by the INE as an example) for 25 years and a fixed interest rate of 3.49% would pay a monthly installment of just over 700 euros. That same amount of money and at the same rate, but with a repayment term of five years, would have a monthly cost of 2,566 euros. During its first year of validity, the holder of this loan would have repaid almost 26,400 euros of principal.

Extending the amortization period means having to pay the bank an exponentially higher amount of interestr, although, in exchange, the citizen can live in a more comfortable way from the financial point of view during the month. Those who can afford it reduce the number of years of validity of the loan to the maximum, but that is something that is within the reach of a very small number of privileged people and families who sell their current home and the income obtained is used to buy another residence , greatly reducing the amount of the mortgage and the cancellation term.

We must never lose sight of the fact that the average gross salary of a Spaniard is 2,126 euros per month, according to the Quarterly Labor Cost Survey of the National Institute of Statistics for the first three months of the year. A monthly fee of 700 euros would already absorb a third of that worker’s income.

Evolution of mortgage loans

During the first six months of this year, mortgage loans have been signed in Spain for a combined value of 28,126 million euros, of which 12,232 million corresponded to those with a maximum repayment period of 5 years, representing 43 49% of the overall figure. In the same period last year, loans for 10,922 million were formalized, 32.1% of the total.

As a counterpart, the amount of operations for more than 10 years have been reduced from representing 63.75% of all those carried out in the first six months of 2022, to represent 46.63%. This is a significant decrease of 35.3%. In addition, there has been an increase in loans for between 5 and 10 years, which today represent 9.88% of the total, when in 2022 they barely accounted for 4.14%. They are the consequences of the vertiginous rise in the price of money.

Only in the month of June, according to data from the central bank, mortgage loans were signed in our country for a value of 5,284 million euros. Of this amount, 1,104 million corresponded to loans with a repayment period of one year, which represented 20.89% of the total; 1,138 million were signed with between one and five years of amortization, 21.53% of the total; 712 million had a period of between five and ten years, and 2,330 million, 44.09%, of more than ten years.