The bank closed in 2021 the most intensive year of mortgage issuance since 2021. In just one year, 417,000 mortgage deals were signed, up 23% from the pandemic year. In total, more than 57,000 million euros in loans have been issued to purchase the property. In both cases, they are at their highest level in decades. The data show the intensity of business during which banks have stepped up their commercial campaigns to offset negative interest rates by volume. In recent weeks, the sector has begun a third shift in this business, shifting its strategy from fixed-rate mortgages to variable-rate mortgages.
This is a back and forth story. In Spain, traditionally variable rate mortgages, with interest renewed – usually by Euribor – were the majority. More than 95% of the operations were financed by this method. That changed five years ago. The interest rates set by the ECB became negative and with it the banks’ margins decreased. In contrast, they began placing bets on a fixed exchange rate, usually more expensive, which reduced the units’ loss of profitability. Rates have not yet returned to positive levels, but hope for growth in Europe, as has happened in the US or the UK, has given banks wings to once again turn to variable mortgage offers.
This process continues from February, until the onset of economic uncertainty over the Ukraine war. Banker and BBVA were the first banks to announce these changes. The trend is the same: raising fixed mortgage prices and lowering the variables differentially, making them more attractive. For example, Bankiner reduced its variable mortgage loan from Euribor plus 0.99% to 0.85%. The BBVA, for its part, cut that interest rate by one notch. As is often the case with this type of offer, these are offers that depend on the customer’s relationship with the bank. Or other products such as insurance or retirement plans. Without them, mortgage prices would rise in most banks.
After these two movements, the rest of the sector followed this path. Both large entities as well as their digital alternatives, or platforms weighing less than the entire market. For example, in addition to the banker, its other banks Coinc and Evo also reduced variable mortgages. Banco Santander and Openbank, its digital bank, have joined these discounts. Ibercaja or ING is also among the banks that have joined this strategy. In the last position was Unicaja itself, which this week announced a variable mortgage cut.
This change in the course of banking takes place at a time when the sale of fixed mortgages in Spain has reached an all-time high. In January, according to the latest data collected by INE, seven out of ten mortgages were issued at a fixed rate. Never has there been such a high ratio. Only one month passed from this data when the bank again started making decisive bets on the floating rate. Inflation, which has been lingering, along with rising price tensions over the Ukraine crisis, has accelerated the growth of Euribor, the reference index for these loans, as others, such as the controversial IRPH, have remained unused. New mortgages.
In March, the index averaged -0.237%, compared to -0.5% in December, which is the all-time low. That translates to a family having a mortgage of € 150,000, at a Eurobor rate plus one point, which means an increase in value of € 190 per year or € 16 more per month. In other words, households with variable mortgages, in conditions of high inflation, see that their mortgages may increase after a few years when low interest rates give them a break. Analysts are already expecting Euribor to remain positive this year, at around 0.4%, according to the banker.
While banking is focused on increasing its strategy in other businesses that are currently more profitable, such as mutual funds or insurance, mortgages remain a major activity in the sector, especially in Spain, with high levels of real estate. In fact, this week the Bank of Spain released a supervisory report stating that the Bank of Spain would be one of the most profitable in Europe by raising interest rates, which would increase business profitability. .
Despite significant advances in fixed-rate mortgages, which accounted for most of the contracts last year, banks’ reliance on Euribor in the mortgage business remains very high. Mortgage borrowers still have to repay three-quarters of the amount, there are still contracts at variable rates, according to the Spanish Mortgage Association, which includes major banks and collects data on these businesses. It is true that four years ago the interest rate was 90%, but today it is still very high and is expected to increase given the mortgage supply drift of Spanish banks.
This association in its latest report has already dared to change direction in the banking sector to get back to square one. “On the one hand, debtors, in order to protect themselves from interest rate hikes, will continue to opt for fixed-rate transactions, while on the other hand, credit supply will become, as it already happens, volatile. “Interest-bearing loans, as they provide entities with more stable planning on the horizon of expected interest rate growth,” the document explains. The association argues that a possible increase in interest rates could lead to a “one-time return” of mortgage renegotiations by clients switching to a fixed rate. “However, it is clear that they will have less and less room to improve conditions,” they said, referring to the rise in prices for these loans.
In presenting the above report of the Bank of Spain, the sources of the organization acknowledged that Spain is experiencing strong growth in the mortgage market, which is already valued in aspects such as price increases or time to build a house. For sale and transfers are reduced. However, it was noted that it is impossible to talk about a new real estate bubble at this time. The bubble, which, however, indicates that it is seen in other European countries and began to mobilize supervisors to take measures to prevent financial problems, although they did not specify where this is happening.
Source: El Diario
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