The ECB fails to cool down the Spanish real estate market despite skyrocketing mortgage costs

Although the European Central Bank (BCE) interest rates have risen at a speed never seen before in the history of the euro, the organism has not managed to cool the real estate market in Spain. Despite an adjustment in the financing costs of 250 basic points in the last months, interest in buying a home is at maximum levels of demand, according to a Fotocasa analysis.

The monetary tightening cycle has caused changes in the trends of the housing loan market. However, this has not changed the appetite for brick. It is 2022 will exceed the record figures of the previous year and is on track to close as best mortgage year since 2010. “Citizens are in full contact with financial institutions to request financing that allows them to acquire a home”, explains the same study on the impact of the monetary adjustment on housing. “Despite the rise in interest rates that marked the second semester, the closure of 2022 it will mean a great milestone in the mortgage market”, they add.

Besides, the hard tone of the ECB It hasn't stopped the banks either., that maintain the pace in granting mortgages, according to Idealist. Financial institutions have not flinched, not even at a time when the risk of non-payment increases before the 'high'’ of the Euribor. Although credit is still given, the way to do it has changed. Some creditors have fully transferred the interest rate rise to prices and others prefer to make offers below expected levels, explains the real estate portal. “Now more than ever, getting personalized offers between different banks and comparing conditions is more valuable than ever”, highlights.

The buying momentum has caused the price of second-hand housing to rise its biggest rise in three years. In November, the increase has been of the 7,1% interannual. And in some areas of Spain, like Badajoz or Alicante, This increase has come to exceed the 16%. “There is a very important part of buyers who have rushed to close agreements with financial institutions to be able to buy the house before a higher price increases.”, they explain from Fotocasa.

But as much as buyers have put their batteries, the rises in mortgages have already occurred and the rates offered compared to a few months ago, both variable and fixed, are noticeably higher. It should be remembered that the Euribor a 12 months was negative in March, just seven and a half months ago, while in November it closed in the 2,829%, highs since December 2009. The reference already looks at the 3% to end the year.

Banks stop offering fixed rate

This has caused banks to want to take advantage of the current moment and have stopped offering fixed-rate mortgages, explains the same source. Financial institutions have withdrawn this type of offer or propose dissuasive contracts with a fixed interest rate around the 4%. Just the opposite of what families are demanding right now. In April, one of the highest figures in the historical series was registered, ending with a 75% of loans granted with the armored rate. However, the withdrawal of these contracts has caused that percentage to fall to 66% in September. Not for lack of demand, but due to a lower offer of fixed loans.

In fact, that tendency to turn to 'lo insurance'’ it is being seen in the novations. Mortgage change requests have multiplied by five, according to Idealist, a trend that they believe will continue during the first half of next year. Fotocasa agrees with this prognosis and points out that the change in conditions from variable to fixed loans reflects “the concern of citizens for the rapid rise of the Euribor”.

The escalation of that indicator weighs in the pockets of families. If this month a Euribor is confirmed 12 months in the 3%, for a mortgage of 150.000 euros with an interest rate of Euribor plus 1%, the monthly fee increases by 267 euros compared to the last month of 2021 y, the annual, 3.204 additional euros, according to the aforementioned analysis. In case the loan is 350.000 euros, that home will pay 624 euros more each month compared to December 2021 y almost 7.500 euros more per year. It will depend on the conditions of each case., but it is estimated that the increases in the monthly installments for variable mortgages sign the 41% in December.

Families at higher risk and increased pressure

But there are those who can still suffer more and see that increase in the 59%. They are the ones who have hired variable mortgages in the last six years in a context of monetary expansion and negative interest rates. Those families represent the 16% of market credits. “They are the ones who would really be at risk since the increase in the cost of their share could be more than 59%”, indicates Fotocasa. They are the ones that have amortized the least principal, since the initial years, above all, more interest is paid due to the French amortization system.

Although the cycle change in mortgage financing has not, for now, reduced demand for housing, this could change in the coming months. yesterday thursday, the ECB announced that it would raise interest rates “further away” than previously predicted. This is because inflation is also going to be higher than Christine Lagarde's entity initially believed.. Besides, The agency assumes that the euro zone economy is already contracting and that the technical recession will be confirmed in the first quarter of 2023.

In fact, there are already some signs of that pressure and the 24% of buyers have had to stop the home acquisition process, according to the same data. Mortgage conditions are less attractive. The current level of interest rates will weigh on family savings and reduce household consumption. Since a greater part of the payroll or savings will be used to pay the installments, less cash will be left for other purchases.

Although the ECB has restricted the money supply until the recession, the scope for rate increases is limited. If they are above the 4,5% (from the 2-2,5% actual), ability to pay would be compromised, as, at that level, the suspension of payments by families would increase considerably.