The tax of documented legal acts (AJD) It is paid by banks and clients. But the share that goes to those who ask for a loan to buy a home tends to be higher when the rent is lower, or if the operation is carried out in areas with a shortage of bank offices. The change decreed by the Government of Pedro Sánchez in November 2018 has not prevented families from also paying this regional tax. A study published by the Bank of Spain confirms that customers have not been spared the tax, albeit unequally: It has been a positive change for the upper or upper middle incomes of the big cities, and they assume most of the tribute via cost the low incomes and the clients of the emptied Spain.
The interest rate applied to new mortgages marked historical lows in November, with 1.65% in the last published data, and still provisional, by the Bank of Spain (BdE). The cost has tended to fall at the same time as the Euribor, to which most variable rate mortgages are linked and which also affects the price offered in fixed ones. The interbank rate averaged -0.497% in November.
The Euribor been below zero since 2015 and the market foresees that, after the effects of the covid and the monetary policies of the central banks, this anomaly will extend until 2031. The historical series of data of new mortgage operations published by the BdE starts in January 2003, and marked its all-time highs between August and November 2008. Since then, it has followed a downward trend that was broken in late 2018 and early 2019 with the AJD.
E. Sanz
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The tax is levied on formalized acts of public deed and is assigned to the autonomous communities. Until October 2018, it was paid by clients requesting a mortgage loan and it was a complete stranger. A tribute that was assumed as a reduced part of the effort that was going to involve buying a home. However, the Supreme put it on the map.
The high court issued contradictory judgments. In the first, he changed the taxpayer and opened the door for it to be retroactive, without specifying whether who should return the money was the bank (mediator of the tax) or the autonomous communities (who collect it). Later he rectified, and the Government of Pedro Sánchez issued an urgent royal decree to fix that the tax be paid by the banks. Several communities took advantage of the change to upload a tribute that it is between 0.75% of Madrid and 1.5% of Catalonia or Andalusia.
Banks have already warned that they would transfer the tribute to the price, something that they also always said with the threat of the bank tax of Podemos and Pedro Sánchez, which has finally been forgotten, at least for now. And a part of the tax has been transferred, although unevenly and irregularly between clients and geographies.
Downward trend
The BdE historical series shows that the AJD broke the trend that had started months before falling away from 2%. The first months after the AJD saw a jump. Afterwards, however, keep in mind that the Euribor has continued to decline and that the percentage of variable rate mortgages has increased again, two phenomena that push down the statistical series, which fell from 1.8% in April 2020 and stood at 1.646% in November.
Therefore, a more in-depth examination is necessary to assess who has paid the tax, which is what researchers Gabriel Jiménez, from the BdE, Daniel Martínez-Miera, from Carlos III University and CEPR, and José Luis Peydró, from Imperian College London, have done in the report ‘Who truly bears (bank) taxes? Evidence from only shifting statutory’.
“The study obtains the following results: first, after the tax policy change, the average mortgage interest rate increases, consistent with a high (but incomplete) tax pass-through. Second, there is a great heterogeneity in said transfer– Higher for borrowers with lower income, fewer credit relationships, who do not work for the lender, or who have fewer banks in their zip code. Third, despite the fact that there is no variation in the tax rate, the change in tax policy increases risk-taking by banks, “summarize the experts.
E. Sanz
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Keep in mind that economic theory says that it does not matter who is the taxpayer by assuming a tribute that goes over the price. That is, the party with the least bargaining power will assume a smaller (or no) part of it. And this depends on the level of competition in supply, the magnitude of demand and the elasticity in both. That is, how they vary if the price changes. In an extreme case, if for the banks the mortgages were a residual product that they did not care to sell or not, and there was a lot of demand, all the tax would be paid by consumers. If the taxpayer is the bank, it will affect the price. And on the contrary, if almost nobody wanted to buy and there was a significant offer, the banks would assume it exclusively.
The reality is that mortgages are somewhere in between. However, banks want clients with high or high middle income, since their mortgage loans are higher, they consider that the probability of default is lower and they can be more profitable, by selling them investment products and services or insurance. Thus, It is intuitive to think that, as the study shows, the AJD penalizes the lowest incomes to a greater extent via price among those who ask for a mortgage and emptied Spain. In the first case, because they are not the bank’s preferred customers. And in the second, because there is less competition.
In the first case, because they are not the bank’s preferred customers. And in the second, because there is less competition
The study compares the evolution of mortgage interest rates with the Basque Country, where the AJD is exempt if the mortgage is for a habitual residence. After the change in the tax, the authors point out, the mortgage rate increases by 10 basis points, which is 80% of the tax. But there is “great heterogeneity in the pass-through, which is greater (they bear the tax more) for borrowers with lower income, fewer credit relationships, who do not work for the lender, or who face fewer banks in their zip code “. The results also show that the transfer of the AJD favors the highest incomes of the big cities. Since the transfer is weaker, there is a relative reduction in the price that they assume when mortgaging.
Another important point is that there are banks that take more risks as a result of this legal modification on the tax. Specifically, those with a larger mortgage portfolio “show a decrease in your earnings and they increase their risk-taking by reducing costly mortgage insurance in the event of loan default, and increasing the likelihood of granting consumer loan applications not directly affected but with many more risks. ”
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