New codes of good practice to protect vulnerable mortgagees are already at the BOE. After the approval by the Council of Ministers, a package of measures against the increase in interest rates was launched, in the absence of information on the commitment of banks. Some of these changes will affect everyone with a mortgage, mainly the ease of switching from a variable mortgage to a fixed mortgage. However, this measure is at odds with the reality of the price hikes these loans have had, which makes the switch less attractive.
In particular, the new code approved this Tuesday provides that customers with variable mortgages can make changes without incurring any fees during the following year. In other words, families with variable rate mortgages will have an easier and freer debt conversion. This also applies if that household decides to pay off the mortgage principal early to avoid future increases in value. “These measures aim to facilitate the conversion of variable rate loans to fixed rates and early amortization of delinquent mortgage loans, to encourage competition in the mortgage market, as well as to promote the most innovative regulatory measures so that citizens can make the best financial decisions regarding this product,” it said on Wednesday. In a published royal decree.
The problem is that this conversion between the variable rate associated with Euribor and the fixed rate, which allows knowing with greater certainty how much will be paid over the entire term of the loan, contradicts the reality of the bank’s offers. Banks in recent months, since the start of the war in Ukraine, have been making incentive offers with variable interest rates, narrowing the differential, compared to the increase in the cost of fixed-rate loans. This led to the fact that it is currently more expensive to make this type of credit.
The continuous renewal of mortgage offers from the subjects was in this direction. Make some more expensive and others more expensive. Thus, banks intend to link their assets more to the evolution of interest rates in order to improve the margins they receive for lending money. This was very limited at a time when profitability was much lower with the ECB’s expansionary policy. However, the price crisis forced a change in the course of monetary policy.
Large enterprises are already placing, for the most part, fixed rate offers in excess of 3%. In some cases, even more than 4%. This is an example of Santander, Bankinter or CaixaBank. This is given that they are related products. In other words, if the insurance is not taken out with the entity itself or other bonding requirements are not met, the price in some of them approaches or exceeds 5%. Many entities simultaneously offer variable rate mortgages that are significantly below the Euribor spread plus 1 point.
This panorama makes it difficult for customers to get fixed-rate mortgages at prices as low as they were at the beginning of the year. This is the understanding of the financial consumer organization Asufin, which, in its assessment of the government-approved norm, concluded that this particular measure came “too late”. “We were recommending in the first half of the year,” the association notes, noting that at the beginning of summer the offers were about 2%. “Between 3% and 4%, it’s no longer interesting,” they add, noting that rates will decrease in the future and being above that threshold means “additional costs” for families. The average price of fixed mortgages signed in August reached 2.71%, according to INE data, compared to 2.09% for variable ones. In the fall, price growth accelerated.
Over the past few years, banks have been fighting low rates by raising fixed mortgage rates. This was three out of four contracts signed, when in the past they were barely 5%. Thus, a good portion of those who have financed their home in this way over the past five years will not be affected by the rate hike. However, variable hiring accelerates its growth until summer. According to the Spanish Mortgage Association, seven quota points have been gained in just two months. In addition, the variable accounts for three-quarters of the mortgage debt that Spanish households have. The government hopes that one million families will be able to benefit from the package of measures.
Be that as it may, the Royal Decree foresees another change, this permanent change, when the next year rolls around. The mortgage law, approved by the PSOE in 2019, provided that if a customer switches from a variable rate to a fixed rate or if they change entities with a fixed contract, a fee of no more than 0.15% can be applied if they make payments within the expected period. The first three years of the contract. Now, this limit remains at 0.05%.
The move to a fixed rate is not the only “but” the association has placed on this package of measures. Another change for customers earning less than €29,400 means they can extend their term. Asoufin notes that this extension, which is for a maximum of 7 years, unless it reaches a total duration of 40 years, could lead to increased costs. “Finally, and despite the statements issued in recent weeks, the government did not achieve that the financial benefits of mortgage-burdened families are cost-neutral, that is, without additional costs,” the association notes.
The president of the AEB Banking Employers’ Association, Alejandra Kindelani, assured this Wednesday that “we can now announce the commitment of the main AEB entities to adhere to the agreement published this morning”. As this is a code of good practice, it is up to the banks to decide whether to comply and sign up to the package of measures. If they do not sign, they are not required to perform.
The code, approved by the government this Tuesday, received the support of the Bank of Spain a day after it was submitted. “It was important that this relief was consistent with not putting undue pressure on the banking sector’s balance sheet and maintaining the payment culture that is so important to the structural functioning of the real estate mortgage market,” Pablo said. Hernandez de Cos., Organization Governor. “The balance has been fixed,” he emphasized.
However, there was also criticism within the government. Unidas Podemos has openly expressed that the measures included in the package approved by the Council of Ministers are not enough and continue to advocate. These words were also joined by the unions, UGT and CCOO, who understand that they have “poor” and “inadequate” access. Some parliamentary partners, such as Más País, also pointed out that the code implies “asking banks to behave well”. “This is practically a proposal,” Erekhon criticized.
Source: El Diario