Almost six out of 10 mortgages constituted last April contemplated fixed interest rates (58.5% exactly). The figure, an absolute record in the INE’s historical series, is even more impressive if one considers that a decade ago this type of product was practically marginal, with a market share of around 4%, compared to the domain of variable interests. An absolute turnaround that Elena, a 43-year-old administrative officer who has recently signed a mortgage, sees as normal: “Today the [interés] I fixed that the variable, oddly enough ”, she responds when asked about the reasons that led her to opt for a loan of the first type.
Elena acknowledges that in her case she did not have to make big speculations to see if, risking a little to a future rate hike, she managed to scratch a savings with a variable mortgage: “Directly at the bank they told me it was more expensive,” she says , “They offer it to you because they are obliged, but so that you don’t take it”. All the calculations were left for the part of linked products that, in exchange for a substantial reduction in the price of the loan, he had to contract with his mortgage, such as life insurance, home insurance and an alarm. “They are more expensive than a product outside the banking system, but it compensates me with what lowers my interest rate,” he explains over the phone.
The administrative case is not an exception, far from it, according to industry experts. Juan Villén, head of the mortgage department of the Idealista portal, indicates that “there are entities that are brutally promoting the part of fixed mortgages” and believes that “what the bank sells you” is decisive in the market. And Carles Solé, Tecnotramit’s mortgage formalization manager, agrees that “an essential factor is the benefit of financial institutions”. These, he develops, “always seek the highest profitability” and at this time they have found it in the combination of fixed rates that “although not high, ensure benefits” and the offer of linked products, without which the loan loses attractiveness .
Prices that match
On the consumer side, Solé believes that price is essential to understand what is happening. “Risk with the variable has always been, but before the fixed mortgages did not compete.” Although the variables are still cheaper, according to the average rates of the latest INE statistics, the difference was reduced in April to just over half a percentage point. Villén highlights this data, close to historical lows, and points out that, given that small difference, a second factor of a psychological order works: “The fear of inflation makes people reassure them to contract a fixed interest”. In other words, the fear of future increases in the price of money makes borrowers prefer to pay a little more right now, in exchange for knowing what the installment will be during the entire mortgage.
The small price difference detected by the INE is even narrower according to the calculations of the Association of Financial Users (Asufin). This, in its barometer this month, calculates from the Annual Equivalent Rate (the APR, which measures the real price of the loan) that fixed and variable mortgages have practically equaled when other linked products are joined, with a 2.37% average interest for the former and 2.35% for the latter. A year ago the distance was 0.6 percentage points.
For Patricia Suárez, president of Asufin, the change in commercial strategy of the banks “for the client is not a bad option, because the quota that remains is low.” But it does show “concern” about the linkages. These products that are offered voluntarily, since they cannot be legally compelled to contract, often become “forced links” due to the circumstances. According to Suárez, this happens especially when “the comfort of the consumer for not looking for something else” and entities “that rush a lot to give the final conditions before signing” converge. In Asufin they ask to pay special attention to this type of complementary products to calculate well what is gained and what is lost when hiring them and not leave it until the last moment, when, for example, a deposit contract about to expire can lead the borrower to accept a mortgage hastily so as not to lose the property and the signal it has given.
Stay tuned to Frankfurt
All these domestic considerations actually stem from decisions made thousands of miles away in Frankfurt. “In the end, what is at the heart of this matter is always monetary policy, whatever the European Central Bank does,” says Francisco Vidal, Intermoney’s chief economist. The “big key”, he explains, is the interest rate of the deposit facility, negative since 2014 and which makes it possible for entities to offer such cheap loans. And the ultimate cause is that there is “a weakened economy that needs support from monetary policy.”
The coronavirus crisis has not changed that fact, says Vidal, which means that “medium and long-term visibility” for the European economy continues to be “quite scarce in terms of improvement capacity.” That is why the expert asks to pay less attention to inflation, which according to estimates will rise towards the end of the year but will once again be below what the ECB wants in 2022 and 2023, and more to the economic recovery. “The key is the intensity of the rebound and the important thing is that it will be controlled and very measured from Frankfurt”, estimates the economist, who emphasizes that the improvement “will not make a degree of generosity like the current one necessary or advisable” in stimulus from the ECB.
In short, an increase in the cost of loans is expected in the coming months compared to the current exceptionality. But the feeling is that there are fixed mortgages for a while. “In the end, in the world we live in, the reality is that low rates are going to stay for a long time,” says Vidal. Solé, from Tecnotramit, adds that “if what European neighbors do is a benchmark, we are not only at maximum fixed mortgages, but these will increase.”