Bank of Spain observes less dynamics in real estate due to decline in real household income
The financial and real estate sectors are resisting forecasts of a decline in activity and an increase in the risk of default among customers with floating rate mortgages. The president of the Spanish Mortgage Association (AHE), Santos González, on Tuesday requested that those who describe the environment of rate hikes as “apocalyptic” lower the tone. He assures that a mortgage market in an environment of “2%, 3% or 4%” rates is perfectly normal and “very healthy”.
That is to say, they believe that neither the rise in real estate prices nor the revival in mortgage payments – with the Euribor already very close to 3% – is disproportionate. “We must not let things get out of hand”, he assured during the ’40 years mortgage market’ conference. Sector Trends and Challenges’ organized by Sociedad de Tasación.
The general secretary of the Spanish Banking Association (AEB), Javier Rodríguez Pellitero, defended the same idea, criticizing that “citizen’s problems do not arise mainly from the rise in interest rates”, stressing that rates between 2% and 4% not too high.
It is true that the recent ECB rate hike has historically been more of a monetary normalization than a sharp tightening of it. However, the rate at which the benchmark rate is now reaching 2% has also been historic and surprised many floating rate mortgage holders, who will see their terms rise abruptly in the coming months.
In fact, the industry continues to negotiate with the government to introduce new safeguards for these customers, in addition to the current Code of Good Practices. But talks have stalled in recent weeks, given evidence that the default rate is not increasing, on the contrary, and that the portfolio of clients in the greatest difficulty is very limited to those contracts signed in the last four or five years.
With this evidence, they are criticizing the industry for the bad press that mortgages currently have. And while acknowledging that this situation is also the result of years of bad practice during the previous financial crisis (when credit flowed happily to high-risk customers), they warn that the real risk is that “even if there is no problem, the reaction of the political class is to look at the mortgage and say ‘what are you going to do to solve this problem?’».
The financial sector is convinced that despite the potential slowdown in the real estate market, there are still no serious signs of alarm around activity. Not even about the prices. “You have to relate the risk of these cycle changes to the quality of demand over the last 8 years. And what we see is a much more solvent profile. The young client did not come in; nor the mileurista, because the risk policies of the banks do not allow it, so we are faced with a privileged starting point to face this change in the cycle,” they say.
The Bank of Spain also does not consider the situation serious. They do, however, see signs of a slowdown that will be closely monitored in the coming months. Speaking at the event, the institution’s deputy governor, Margarita Delgado, warned of a certain slowdown in light of the “depletion” of supply and demand due to the high levels of 2021 and the current adverse macro-financial context, “characterized by the rise in interest rates linked to the normalization of monetary policy’.
Delgado also drew attention to the impact that the “loss of real income of households due to continued high inflation and the deterioration of their confidence and economic prospects” may have on the sector.
The deputy governor indicated that if these adverse demand factors are amplified in the coming months, the decline in activity could intensify.
Source: La Verdad
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