The average rate of mortgages climbed in August

From Oi Realtor we want to tell you about the current situation of the average rate of mortgages in Spain. Continue reading the article to find out.

What is the interest rate on a mortgage?

First of all, it is essential to make it clear what the interest rate is on a mortgage. When we talk about the interest rate of a mortgage, we are basically referring to the money that the bank charges you for lending you their money. It’s about a percentage that is applied to the amount that you still have to return. This determine what will be the installments that you will have to pay per month to pay off the debt with the bank.

On mortgage loans, the interest can be three different types. On the one hand there is the interest fixed rate, it is a constant percentage. Then we have variable interest, which is the sum of a reference index plus a spread. Lastly, there are the mixed-rate mortgages, a mixture of the two previous types.

The average rate of mortgages increases in the month of August

The average rate at which entities in Spain have loans granted for mortgages during the month of August was 2.198%. Its about highest level recorded since April 2015, according to data from the Bank of Spain. These data were collected by the Spanish Mortgage Association (AHE).

In this way, the average rate of mortgage loans for more than three years for the purchase of free housing granted by entities in the country, climbed for the fifth consecutive month. In fact, he managed reach 2.198%, compared to 1.986% that was registered in the month of July. A year earlier, the average rate was 1.529%.

This increase is generated in a context in which the Euribor, that is, the index to which most mortgages in Spain are referenced, closed the month of August at 1.249% above the 0.992% registered in July. So, it continues the upward trend that started at the beginning of 2022.

On the other hand, the average rate of mortgage loans between one and five years for the purchase of free housing that were granted by credit institutions in the euro area rose to 2.26% (referring to the previous month), compared to the previous 2.03%.

The ECB forecasts that housing will fall by up to 9% in the coming years

The rises in mortgage interest rates house prices will fall. It is expected that they could fall by up to 9% in the eurozone as a whole over the next two years. This is indicated by data from the European Central Bank (ECB). In an article published in its ‘Economic Bulletin’, different economists from the institution have affirmed that during the first quarter of 2022 there has been an increase in mortgage interest rates of 63 basis points. Its about largest increase per semester that has ever been recorded.

In this regard, they have added that This increase will have effects on both housing costs and real estate investment. According to a linear projection carried out by ECB technicians, 1 percentage point increase in mortgage rates leads to a 5% decline in home prices after two years. As well as, an 8% drop in real estate investment.

However, if one takes into account non-linear projection to consider greater price sensitivity due to the low interest rate environment, the impact of that one percentage point increase is doubled. In this way, housing prices could reach down 9% within two years. On your side, investment would fall by 15%. This drop in house prices could be offset by a increase in prices and investment in houses with more space and far from the city centers to adjust to the changing preferences of households after the Covid-19 pandemic.

UGT will ask Calviño to create a fund to face the rise in the mortgage

Pepe Álvarez, Secretary General of the UGT, will meet with the First Vice President and Minister of Economic Affairs and Digital Transformation, Nadia Calviño. They will take care of address the agenda of the Recovery Plan. It is a meeting in which will transfer to the vice president his proposal and the report he has made for the creation of a Protection Fund against the rise in mortgages. This implies the rise in interest rates and the Euribor, endowed with some 650 million euros.

The increase in mortgage payments will not be able to be supported by a large number of familiesAccording to the union. This is why you see the need incorporate new measures to protect access to housing, as part of a reinforcement of the social shield. For this reason, UGT wants to create a state budget fund. The objective is provide assistance to individuals and families who must pay a mortgage whose cost will rise excessively after its next renewal.

What is the union’s proposal?

The union proposes that Beneficiaries are those people with total income below the average salary in Spain. Also to people or cohabitation units in a situation of social vulnerability. To have access to this fund, people who meet one of these requirements should prove, in turn, that the monthly payment of the mortgage in habitual residence is greater than 30% of the net monthly income of the person or cohabitation unit.

Regarding the amount, the state fund would cover, through a monthly benefit, the extra cost caused in the event that the Euribor exceeds a value of 1.5 points and would have a maximum duration of 12 monthswith the possibility of extension if the established requirements persist. UGT anticipates that the measure it may affect approximately 340,000 home mortgages, with which 650 million euros would be necessary to absorb the entire extra cost caused to families. In this regard, Pepe Álvarez’s union believes that The Government will collect 1.5 billion euros with the new banking tax. It is an amount that will be higher by about 250 million after the announcement of the ECB rate hike, so the size of the proposed fund would be about a third of that collection.

After reading this article, we are very interested in knowing what your opinion is about the rise in the average rate of mortgages in the month of August. If you are interested in sharing it with us, you can do so in the “Comments” section of our Blog.

If you find yourself in a situation that you cannot solve on your own, do not hesitate to go to Oi Realtor. A team of professionals will be at your disposal and will help you throughout the process. We are waiting for you!

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