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the small print of the ‘king’ of mortgages

With the mirage of 2008 always present, the Spanish real estate market It boasts of good progress in the second year of the pandemic and with a supply crisis through. Two figures are enough to confirm it: the 24.4% increase in the sale of homes in the month of November (latest data available) compared to the same period of the previous year and the 24.1% rebound in the signing of loans to buy a house (also in November), which stands at decade high. Facing this situation are the banking entities, immersed in a particular war to seduce the largest number of people with aggressive conditions and ‘tie’ them to the entity for the duration of the mortgage and, of course, the pull of the fixed rate.

According to data from the National Institute of Statistics (INE), at the present time more than six out of ten loans granted for housing are contracted at fixed interest (64.3%), somewhat unthinkable even by analysts more doomsayers at the time of the real estate boom, when only 3.4% opted for this option. With a overheated economy, at the time it made sense to hold on to the variable, since while it was high, it was still lower than the other. Although, for now, this trend continues, that is, the fixed is more expensive than the variable, the tables have turned and with the price of money at zero, Spaniards prefer to pay a little more in exchange for always pay the same amount. The irrefutable proof that the great recession has also led to a greater aversion to risk in terms of the cost of housing, opting to clear any alteration economics of your mortgage payment, which also intrinsically carries the financial lessons learned in the last decade.

If one is made more exhaustive reading of the fine print In this change in behavior, the setback also seems to be due to the profound transformation that the financial sector has undergone since 2008, led by the large mergers between banks and the appearance of fintech companies with which they almost impossible to compete in conditions and they are forced to ‘mortgage’ their profitability in order to avoid draining customers.

Thus, in none of the eight main entities in Spain the average rate fixed exceeds 1.5% at the present time. Only Abanca and CaixaBank come close with 1.4% and 1.3%, respectively, according to Rastreator data. Despite this, it is striking that they do not appear on the list of cheaper than it elaborates on a monthly basis said price comparator. With the Euribor in an environment of -0.5% and after a slight year-on-year increase of 0.25%, the person in charge of Mortgages at Rastreator, Sergio Carvajal, assures that “as long as there are no big variations and continue (the Euribor) at lows, the scenario will be similar, with an increase in the fixed-rate offer that is causing both guys are getting closer”.

In a scene of rates on negative ground from the sector They have spent years insisting on the landline as the option par excellence, despite the fact that interest is at rock bottom. “If a person who earns around 2,000 euros and allocate 500 euros a month to the mortgage, in a context of rising benchmark indices, you can pay 1,000 euros, an expense impossible to bear with children, unless a savings cushion is available”, specifies by way of example to this medium the head of the Idealista Mortgages departmentJuan Villen.

At this point, the question Villén asks himself is, how much does the Euribor have to rise for the fixed to be better than the variable? Although it highlights that the election in any case attends to the particular needs of each one, it specifies a assumption in which it is postulated as the best option: Acquire a single-family home with the intention of selling it within a horizon of five-seven years. The professor from the Faculty of Economics at the University of Navarra, David Echeverry, agrees with this, explaining that taking out a fixed-rate loan at a low level like the current one it is more advantageous for the debtor, since they will not have to worry about future increases that will harm, on the other hand, the variable rate. “The variable rate credit only it is less risky in a macroeconomic environment in which future declines cannot be expected, which is not the case. In the present, a fixed reference index is safer”, he adds.

While on the other side of the Atlantic, analysts are already discounting a imminent rate hike, in Frankfurt they are still reluctant to do so, despite the fact that high inflation puts the European Central Bank (ECB) on a platter of the long-awaited monetary normalization by many. However, that moment sooner or later it will happen and consumers will have to be prepared for the end of cheap mortgages. “To the extent that these expectations settle and interests begin to pick up, it is reasonable to think that there will be an increase in the types of concession, both in fixed and variable mortgage credit, with a future business move of the entities towards the variable, which could be less interesting from the perspective of the client”, María Rodríguez and Marta Alberni, members of the Banking department of International Financial Analysts (AFI), comment to this medium jointly.

“The mortgage market have a healthy time”, comments the Director of Studies for the portal piso.com, Ferran Font. As a button sample, the expert indicates that before the ‘financial crash’, mortgages represented 150% of the sales rate, while now it ranges between 70-80%. “On the one hand, we have rigid credit access conditions, while demand is also very active,” he adds. The real problem will come when users, accustomed to this favorable environment for them, find that both types register a notorious increase sponsored by the rise in prices. The closing of the faucet to easy financing preceded a more elitist market in exchange for cheap money and now everything seems to indicate that not only will it be just as difficult access, but it will also be more expensive, although “this change takes time to be noticeable”.

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