Government and banks are negotiating to help families affected by the Euribor as much as possible after two months of disagreement
At the end of the summer, talks began between the government and banks to “strengthen” the protection of households affected by the rise in interest rates, which have marked records for years. With Christmas just around the corner, the Council of Ministers wants to discuss the new action plan on Tuesday, so that families with fewer resources can cope with the increase in the monthly costs of their variable mortgage; and at the same time, measured incomes have opportunities to reduce their debt burden without the costs or obstacles they currently face. But as late as Monday, negotiations between the Executive and the bank still failed to materialize.
The executive is planning to implement a new protocol, which was not initially conceived by the Ministry of Economy, where they have advocated expanding the facilities to a large number of users to avoid defaults. Finally, the banks’ insistence on tempering expectations by extending the Code of Good Practices has put a dent in pushing the negotiations to the extreme. Changes will come, but they will not be drastic, as feared by ministers like Labor and Yolanda Díaz, who this weekend rejected ‘light proposals’, just a make-up.
There will be two versions of the new financial support, depending on the income of the households affected by the increase in Euribor, as indicated by negotiating sources. On the one hand, the current Code of Good Practices for the most vulnerable families will be strengthened. This protocol, approved in 2012, is obsolete in the terms in which it was in effect. For example, families with an income of less than three times the IPREM (just under 25,000 euros per year) can benefit from the measures. That plan made it possible to restructure the debt for five years with a lack of capital; an interest of Euribor plus 0.25 during the grace period; or an extension of the term of the mortgage to 40 years. All facilities that will be relaxed from now on. In addition, if this restructuring plan proves infeasible (when mortgage payments exceed 50% of household income, a percentage that is also being relaxed), the bank must offer the dating as payment for the home.
The Board also wants to enable a kind of financial ‘code 2’ for “middle class debtors who become vulnerable due to the sudden increase in the Euribor.” It is one of Economy’s objectives that has been partly met by not being able to involve beneficiaries in the restructuring measures; but they will have more facilities than the current ones to pay off their mortgage early; as well as the transition from variable to fixed interest, although current mortgage law has already minimized the cost of this switch.
During the negotiations, the entities had warned that the new code, which was widely extended to a large segment of the population, could be a double-edged sword. That is, it solves problems in the short term, but exacerbates them later. One of the biggest fears is the “danger” of having to allocate more capital to meet potential defaults in the medium and long term.
The context in which entities have moved since the exponential rise in official interest rates and, in parallel, the Euribor took place precisely indicates that major mortgage defaults are unlikely to materialize for some time to come, despite the fact that the mortgage index has fallen from -0.5% to a years ago to almost 3% in November. This means an increase of more than three percentage points, to which the agreed difference must be added for each mortgage.
In addition, the Council of Ministers intends to approve the bill establishing the Independent Administrative Body for the Defense of Financial Clients, following a favorable advice from the Council of State last week. This body includes the implementation of a mechanism that will unite the claims services of the Bank of Spain, the National Securities Market Commission (CNMV) and the General Directorate of Insurance and Pension Funds.
Its resolutions, to be followed in the event that the bank does not comply with the customer’s complaint, will be binding on financial institutions when the amounts claimed are less than 20,000 euros.
CLEARLY ALBA
The recent escalation of the Euribor in the heat of the European Central Bank’s (ECB) interest rate rise not only makes mortgage payments more expensive, which are now reviewed annually. Prospective homeowners have also come face to face with an indicator whose average has risen from -0.502% at the start of the year to 2.629% in October. In November and with seven working days to close the month, it is already almost 2.81%.
Banks have taken advantage of this trend to renew – and above all make more expensive – their mortgage showcases in recent months. The average rate at which they now grant credit for the purchase of a house was 2.66% in October, according to data from the Spanish Mortgage Association (AHE).
This is the highest level since the same month in 2014 and the eighth increase in a row, after rising to 2.41% in September. Just a year ago, the reference was around 1.46%, 1.2 percentage points less than now.
Most expensive offers
The entities started tightening the terms of their fixed rates weeks ago to encourage customers to return to variable mortgages, which are now benefiting them more thanks to this increase in Euribor. Given this strategy, nowadays it is practically impossible to find loans at a fixed interest rate of less than 3% APR. And the few who still fall below that threshold do so on the basis of bonuses depending on the contracted products (home insurance, direct debit payroll, investment funds, etc.).
It is true that mortgage rates were higher a few years ago. But since 2003, when the Bank of Spain historical data series begins, there has never been such an abrupt rise in prices as the current one.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
