Households that signed a variable rate mortgage before June 2022, when the European Central Bank (ECB) announced the first rate hike, they have not yet experienced all the increase in the cost of their loans to buy a home. In fact, they have hardly suffered half the impact expected by the Bank of Spain (BdE). This is how the banking supervisor estimates it in the quarterly report of macroeconomic projections published this Wednesday.
In it, the BdE anticipates that “the impact of the rise in interest rates on the average cost of private sector debt, which has been limited so far, will increase in the coming months“. For households that signed a mortgage to acquire a home at a variable rate before the interest rate rise “a very important part is still missing, around 50% of the translation is pending“, warns Ángel Gavilán, General Director of Economy and Statistics.
According to his calculations, the variation experienced in the average cost of household debt associated with loans for debt acquisition was around 1.25 percentage points as of January 2023, but the potential variation calculated by the Bank of Spain that can be achieved in the medium term approaches to the 2.9 points, in line with the cumulative increase in the 12-month Euribor since the end of December 2021.
The European Central Bank (ECB) has already raised interest rates by 3% and has announced a new rise -the sixth already- of 50 basis points that will take the price of money to 3.5%. The reference index for most variable mortgages in Spain It has risen from -0.5% in which it moved at the beginning of 2022 to 3.4% in which it stood this Wednesday (with a provisional average of 3.7% in March).
The transfer of interest rate increases to the cost of new loans is also behind schedule, according to the BdE
“Historical models suggest that you have to wait between one and two years for the rise in rates to be fully transferred to mortgages,” warns Gavilán, although he also recalls that “They had never risen 300 basis points in six months and this intensity can generate different behaviors”. In any case, it portends that the fact that half of the impact is yet to come “it will reduce dynamism to activity in 2023 and 2024”, as it already happened in 2022.
In the new credits, those signed by families that have decided to borrow in the midst of tightening financial conditions, the transfer of rate increases as well “it is being somewhat slower in Spain than in other episodes of the past and than in other economies of the European Union”warns Gavilán, that in any case “it will just be completed”.
The general director of Economy and Statistics at the Bank of Spain points out that “the rates of the new housing credit operations should be somewhat higher than what is observed” and also points out that this ‘incomplete’ translation is also observed in the type of household deposits.
Los big banks still do not pay for deposits eight months after the first interest rate hike. However, financial institutions plan to advance the payment for the traditional savings product, which was expected to end up arriving after the summer, given the crisis at Silicon Valley Bank and Credit Suisse, as reported by Vozpópuli.
Half a million vulnerable households
The increase in mortgage prices will increase the percentage of households that are considered vulnerable by the Bank of Spain to Financial debts represent more than 40% of your net monthly income. The banking supervisor estimates that an increase in the twelve-month Euribor of around 400 basis points increases the percentage of households with debt with a high net financial burden by 3.6 percentage points compared to the situation prior to the crisis, up to 14%. .
If the rise reaches 500 basis points, then the percentage of vulnerable households rises another seven tenths, around 15% (specifically, 14.7%). The percentage of households with a high net financial burden is calculated with respect to the total number of indebted householdswhich, according to the data from the Family Financial Survey 2020the latest available, represent the 57.1% of the total.
According to the Active Population Survey (EPA) of the National Institute of Statistics (INE) in Spain there were 19.2 million homes at the end of 2022. In this way, indebted households with a high financial burden They already exceed one and a half million and will continue to grow if the rise reaches 500 basis points. In other words, with the rise in rates between 500,000 and 600,000 families will enter a vulnerable financial situation, which will be added to the million that already existed before the crisis.
