The parties open the debate to mitigate the impact of the mortgage rise on the most vulnerable

Political parties have opened the debate to help the “most vulnerable” households. The starting gun has been led by United We Can by proposing a limit to this increase in credit for certain families. “A cap on mortgages is not allowed in Europe,” Pedro Sánchez replied at night in his interview on RTVE. “I share the idea that the tightening of monetary policy does not translate into an increase that puts families in greater difficulties,” Sánchez added without specifying anything else. The parties do not agree on the method but open the debate of ideas to manage this new setback that citizens are going to suffer. A triple shock for families The scenario for families has drastically worsened in recent weeks. Inflation is not giving much respite –10.5% rise in August — and will continue with us for longer than expected. This translates into a very large loss of purchasing power: wages rise by 2.6%, four times less. The same money buys far fewer goods and services. Added to this factor are the geopolitical risks and uncertainty surrounding the war in Ukraine. Let’s see how the companies are doing… Now interest rates are added. Household economies, already diminished by two previous factors, will have to allocate more income to pay the mortgage. “Any of these elements we have already experienced in isolation. Each one separately is not so serious, but all three at the same time, yes,” explains Raymond Torres, Director of the Economic Situation of Funcas. “That’s why we have that perfect storm feeling: What’s happening, by construction, is taking the economy into recession.” The rise that comes Households that have to review their credit with reference to September are going to see a 2.4 percentage point difference. A year ago the Euribor was at -0.5% and now the average so far this month is around 1.9%. This variation of the reference index in the last twelve months will generate monthly increases of 115 euros for every 100,000 euros of mortgage. The families whose bank recalculated the loan in the first part of the year noted a more moderate increase. The Euribor differential compared to a year ago did not exceed 1% until June. It is true that, today, three out of four mortgage loans are signed at a fixed rate. For years they did not even reach 10% of the total. But in 2020 this trend was consolidated and the percentages have been completely reversed. There is a certain “moral hazard”, as the economists say, if we now come to the aid of those who contracted at a variable rate and nothing was done in their day with respect to those who opted for a fixed rate and were paying much more for their letter throughout the period of negative rates. The circumstances were different: you did not live with an inflation of more than 10%. In addition, although the figures for new mortgages are inclined towards the fixed rate, in accumulated figures this is not the case. Families have reduced their debts with banks in recent years and accumulate 520,000 million euros in mortgage loans, according to the latest data from the Bank of Spain for July. Of this amount, about 400,000 million are at a variable rate, indicates the Spanish Mortgage Association. “Delinquency can rise, but not structurally,” argues Torres. “We are better off than a few years ago because the debt is lower and the criteria for granting credit have tightened compared to the real estate boom.” The key for this expert will be in the employment variable. “It is very important that the labor market endures. Until now it has gone well. If people keep their jobs, they are likely to resist even if they lose purchasing power. But if you add a loss of work to the rise in mortgages, then it is something else” .The rise in interest rates and mortgages has not peaked yet. To the two rises in rates of the European Central Bank (ECB) at least, two more will be added. This change in the tone of the ECB’s discourse has taken the Euribor, in a very short time, to levels that we have not seen for a decade. The aid that already exists The vast majority of banks adhere to the Code of Good Banking Practices promoted by the Government in 2012, in the midst of the financial crisis. This initiative already establishes a series of criteria so that the most vulnerable families can avail themselves of a series of measures if the payment of the mortgage is complicated. A series of criteria must be met, such as: That it is the main residence. That the fee exceeds 50% of the family’s income. That household income does not exceed three times the IPREM indicator. For 2022 this calculation would be around 1,737 euros at most per month of income. That the economic situation has been altered in the previous four years. In the event that the client requests it and this situation of financial vulnerability can be demonstrated, the entity that complies with the code will offer a debt restructuring so that the installments are more affordable.