Sumar has presented a non-legal proposal for the Economy Commission of the Congress of Deputies to debate the implementation of a regulated fixed rate mortgage, for the purchase of a habitual residence. The parliamentary group points out that the objective is to “end the spurious transfer of mortgage risk management from banks to households.”
“This transfer is possible thanks to poor mortgage regulation that allows a policy of marketing credits for the purchase of homes that makes variable rate mortgages prevail over fixed rate mortgages, which translates into higher costs and financial instability. for homes,” says Sumar in his proposal. In addition, it points out “a greater negative impact of restrictive monetary policies on Spanish families during inflationary periods, such as the one we have just suffered.”
Sumar also believes that the mortgage model has “negative consequences that also extend to credit institutions that lose reputation with this policy and can increase their default rate.”
The parliamentary group points out how variable rate mortgages have predominated in Spain, which until 2015 accounted for 90%, although after the burst of the bubble, fixed or mixed rate mortgages have gained prominence to account for six out of every 10 mortgage contracts. . However, the “foreseeable and progressive reduction of the Euribor in the coming months promises to make variable rate mortgages prevalent again.”
“Data from the Bank of Spain and the Spanish Mortgage Association reveal that, in June 2022, before the start of the interest rate increase by the European Central Bank, more than 70% of the 626,680 million euros of the balance Total outstanding mortgage loans (50% of GDP) were subject to a variable interest rate, which places Spain in an anomalous and vulnerable position to any inflationary process,” says Sumar.
Lower Euribor
As a consequence of the cuts in the official interest rates of the European Central Bank (ECB) due to the moderation of inflation and the stagnation of activity in Germany and Francethe Euribor has fallen to 2.7% in recent days, a minimum not seen since the fall of 2022. This reference index for the majority of mortgages and loans in our country and in the eurozone as a whole reached climb above 4% a year ago.
Exactly, in September 2023, the Euribor averaged 4.149%, where it reached the ceiling in this cycle of monetary austerity. Since then, its decline has been very pronounced, and in the last six months it has been making the variable interest rate mortgages that were subject to the annual review cheaper. For a few more months, the loan installments, which are updated every six months, have also been reduced. Likewise, the cost of new mortgages has been falling, to the point that some experts warn that it is a factor that encourages demand for home purchases and there is a risk of reheating a real estate market with already skyrocketing prices.
The example of the electricity market
Sumar’s proposal would entail following the example of regulated rates in the electricity market “where consumers can choose between market rates, subject to variations, and regulated rates that offer greater stability and predictability.”
The idea is to create “a regulated fixed-rate mortgage” that would be “accompanied by a minimum associated risk profile that the borrower would have to meet to access it and that would ensure their solvency to meet the mortgage payment.” “Obviously, this regulated mortgage does not limit the rest of the mortgage offers that credit institutions want to offer, but it does set a reference that they would be obliged to offer in any debt operation for the purchase of a primary home. Additionally, current mortgage holders will have the possibility of novating their mortgage loan into the new regulated mortgage,” the training explains.
Thus, those mortgaged would have to meet a series of requirements, such as having a stable employment relationship and a maximum limit of the mortgage payment plus remaining interest on debts with respect to the mortgagee’s income of 40%.”
The fixed rate of the regulated mortgage would be that of 10-year Treasury bonds. “This equivalence is due to the fact that the risk that an entity assumes when granting a mortgage loan is zero, since it has a double guarantee.” On the one hand, “the value of the guarantee provided exceeds the amount of the mortgage loan by 20%.” On the other hand, “the mortgage guarantee is personal in Spain, that is, the mortgaged party responds with all his income and assets to respond to the payment of the debt and not only with the value of the mortgaged home, there being no dacion in payment except in cases of extreme vulnerability.”
In addition, the maximum term of the mortgage would be 30 years, with a maximum credit limit regarding the value of the home of 80%.
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