Rates are rising, mortgages are getting more expensive: back to 2008?


Rates are rising, mortgages are getting more expensive: back to 2008?

The rise in interest rates by the European Central Bank has made the mortgage market more expensive and puts many families with mortgages at risk. However, it seems that this time there will be containment measures to protect them

In recent weeks, there has been talk in Spain about the possibility of financial institutions taking protective measures for vulnerable mortgage borrowers; that is, for those with a family and personal context with lower incomes and higher expenses.

These negotiations are taking place with the aim of preventing the general rise in commodity prices and official ECB interest rates from depriving these groups of their mortgage payments.

The possible implementation of these measures in a complex economic and social moment refers to the mortgage financing situation between 2008 and 2014, when the effects of the financial crisis on mortgaged people were devastating.

Thousands of people lost their jobs, many businesses had to close and the ensuing series of defaults led to home loans. The drama of losing their homes for many people coincided with the bankruptcy of part of the Spanish financial system and its forced restructuring, which is still ongoing.

With this background in mind and in order to avoid a repetition of the mistakes of the past, the government and financial entities have committed themselves to take immediate measures, targeting vulnerable groups.

It is worth asking whether there are differences in the mortgage area between the current situation and the crisis of 2008 and whether these differences could influence the success of the measures examined.

From the point of view of financial institutions, they now appear to be in a stronger position than in 2008. The solvency standards adopted by the ECB in 2010, as well as the experience of managing financial risks after the 2008 crisis, have led to the portfolio of mortgages intended for the promotion of real estate projects and the financing of housing currently present a lower level of risk.

For this reason, financial entities do not have in their balance sheets the financing loans related to real estate projects that they had before 2008. It should not be forgotten that, despite the growth of real estate activity over the past 6 years, in the period 2000- In 2008, 500,000 homes were built in Spain per year. In the period 2016-2019, this annual average was 70,800 homes.

From another perspective, the number of mortgages in the portfolio of financial institutions increased by 7.4% between 2017 and 2021, while the average amount of each of them decreased by 11.8%. In other words, there is a moderate increase in the number of mortgages and a decrease in the average outstanding amount.

On the other hand, the restructuring process in the sector has led to the disappearance of many entities, thousands of redundancies and the closure of numerous branches, with the ensuing social, cultural and employment costs, but has allowed Spanish banks to reduce their costs and to increase its efficiency.

From the point of view of the last homebuyer to need a mortgage, the number of people who have chosen to take out a fixed rate on their loans has risen from 9.4% of the total in 2017 to 24, 9% in 2021, allowing them to maintain their current quota despite the rate hike.

But even for the majority of people who took out floating-rate mortgages in the past decade, financial institutions applied risk assessment measures in line with the 2010 regulations, which implied stricter criteria for the contribution of equity, solvency and possibility to pay.

Furthermore, among the new mortgage holders, there are those who have bought a home by selling a previous one, resulting in a lower mortgage in terms of money and time. Those who have acquired real estate as an investment usually bring in more equity than other types of buyers. All these elements indicate that the percentage of mortgaged people with economic difficulties will be lower than in 2008.

It also doesn’t look like we’re going to see a succession of bankruptcies in the real estate developer sector. Compared to the situation in 2008, the most important companies in the sector are now linked to international investment funds or to large promoters at national level, with large own financial resources.

For this reason, and in anticipation of better times and greater profits, they can cope with the slowdown in home sales in the short and medium term without jeopardizing their survival. Local businesses, for their part, have pursued cautious strategies with fewer ongoing promotions.

From a public policy point of view, the response has also been faster than during the 2008 crisis. The European and Spanish authorities have taken fiscal policy initiatives of a redistributive nature, targeting the most vulnerable sectors and supporting their basic needs .

But there are also circumstances that are cause for concern. Even today, the vast majority of mortgage loans have a floating interest rate that can be revised every year, and are dependent on the official ECB interest rates, of which there is little certainty as to how they will develop in the near future; Moreover, inflation is much higher than in 2008.

The effects of global warming are becoming increasingly apparent in economic sectors such as Andalusia agriculture. In Europe, a war is waged with an uncertain future that affects the model of international trade and in a context of technological change there is a huge increase in inequality in the world.

Finally, access to housing remains almost impossible for those without savings or financial support from the family, while rents continue to rise in the main Spanish cities.

Although they are better prepared than they were in 2008 to face this new crisis, government departments and financial institutions must take all these factors into account when taking measures to prevent thousands of people from losing their homes and to improve their access to housing for them. to ease. many others.

This article was published in ‘The conversation’.

Source: La Verdad


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