The rise in rates and the banks’ refusal to remunerate deposits trigger mortgage repayments to 30,000 million

2023-11-06 03:04:04

Spaniards with savings in the bank – which are becoming less and less – are decisively betting on repaying their mortgage loans. The Bank of Spain estimates that the total volume amortized in the first half of 2023 represented 6% of the balance of outstanding mortgages, compared to 5% in the same period of the previous year, as stated by the institution in the latest Financial Stability Report published on last Monday.

In round numbers, and since the balance of outstanding mortgages was around 511,000 million euros at the beginning of the year, it means that the amount amortized until June would be 30,660 million euros.

The determined commitment of families to pay their mortgage in advance has to do with both need and opportunity, according to the analysis of its causes carried out by the institution directed by Pablo Hernández de Cos. The Bank of Spain report first ensures the “stimulus” provided by the increase in interest rates on variable rate loans. The rate increases of the European Central Bank (ECB), stopped at its last meeting, have caused the average interest rate for all mortgage loans to reach 3.62% last August, its highest figure since October 2014, with an average term of 23 years, according to the latest data from the National Institute of Statistics (INE). In the case of the initial rate, it rose 1.3 points compared to the same month last year, to 3.25%, its highest figure since July 2016.

But the increases in the official price of money are not only impacting the new loans that are signed but also those already signed. Those with variable rates are being severely hit by the rise of the Euribor, the interest rate at which banks lend money and which runs parallel to the rates set by the ECB. Although in October it has barely advanced 0.011 points compared to the figure recorded in September, monthly loan payments have continued to become more expensive. A variable loan type of 150,000 years with a duration of 25 years with an interest of the Euribor plus a differential of 1% will become more expensive if it is revised with the October Euribor by about 1,550 euros per year.

With this delicate panorama, the amortization of the mortgage allows its holders to save money on these increasing interests, especially in the first years of the life of the loan, which is when they are highest in the Spanish system.

Deposits

The second factor to which the Bank of Spain attributes this amortization fury is the refusal of banks to remunerate deposits highly. With liquidity saddles filled to the brim after years of very cheap money, entities have no need to raise funds through these products. And they are not doing it. Although in September both CaixaBank and ING each launched deposits with remunerations of 2%, large banks in general remain closed to paying seriously for savings. Only those smaller entities and online banking, which most need liquidity for their operations, offer remunerated deposits at interesting rates.

Added to these two incentives is the one approved by the Government to eliminate commissions in this type of operations. At the end of last year, the Executive announced a series of measures to confront the meteoric rise of the Euribor, which include the elimination of commissions for temporarily repaying mortgages this year.

The high rate of repayments as well as the contraction in the volume of new credit granted have intensified the downward path of the outstanding balance of mortgages. Specifically, and according to data from the Bank of Spain, in the second semester it was 2.6% below the same period in 2022, below 500,000 million euros.

The fall in the volume of new credit granted has to do, as the entity assures, both with the number of loans granted and their amount, which have been reduced. So far this year, with the accumulated data from January to August compiled by the INE, the drop in the number of mortgages granted is 15.4%, in the average amount 2.3% and in the total amount granted 17%. A good part of this drop has to do with the fact that many home purchase and sale operations are being closed without financing. In the month of August, mortgages granted represented 58% of transactions when, historically, this figure has been between 70% and 80%.