Giulio Rodriguez Lopez
In the second half of 2022, the interest rate increases implemented by the European Central Bank were accompanied by a notable increase in the main benchmark index for variable-rate loans for house purchase, the twelve-month Euribor. Between November 2021 and the same month in 2022, this indicator increased by 3.3 percentage points. This increase was significantly higher than that of interest rates on new loans, which in October 2022 increased by 1.2 percentage points compared to the same month of the previous year.
In view of the importance of increasing the Euribor, the government, the Bank of Spain and other organizations should clearly explain the methodology followed in preparing the Euribor. Little is known about this index, but it suffers greatly in many homes.
The Government estimates that, of the almost four million mortgages linked to the purchase of a main home, there are around one million families in Spain that could suffer a significant increase in the installment to be paid due to the increase in the Euribor
The upward evolution of the Euribor can produce increases in the rent payable by home buyers with a variable rate mortgage of around 40%, depending on the residual duration of the mortgage. Meanwhile, families buying a house with a new mortgage will be little affected by the evolution of the aforementioned indicator, as indicated by the fact that in September 2022 the average rate on new transactions stood at 2.47%, which is a reasonable interest rate.
To correct the upward trend in the rent payable by buyers linked to a variable rate loan in the case of the most vulnerable households, the Government amended the Code of Practice in force since 2012. The latter was established at the time to alleviate the fate of families who risk being evicted from the house they occupied, and this following the non-payment of the mortgage loan with which they had purchased the house.
The new Code of Best Practices aims to alleviate the situation of families affected by the increase in the Euribor and this through the Royal Decree-Law 19/2022 (BOE of 11.23.2022). This standard establishes a new code of practice, adapted to current circumstances. Banks and any body or entity that professionally grants mortgage loans can adhere to the new code voluntarily and in writing. Apparently the banks will adhere to the new Code, a necessary but not sufficient condition to support the situation of families affected by the rise in the Euribor.
Households with an income of less than 25,200 euros/year (3.0 Iprem) and whose access effort increases by 50% as a result of the aforementioned evolution of the Euribor, will have a grace period on the principal portion of the mortgage of five years. The repayment term of the loan will be extended up to 40 years. The interest rate applicable during the grace period will be reduced to Euribor minus 0.1 percentage points.
The Resolution of 11.23.2022 (BOE of 11.24.2022) of the Secretariat of State for the Economy publishes the Agreement of the Council of Ministers of 11.22.2022. It follows from this agreement that families with incomes of up to 29,400 euros per year (3.5 Iprem) will be helped for whom the aforementioned evolution of the twelve-month Euribor involves an increase in the effort required to meet the payment of the mortgage at least 20%. The rent resulting from this evolution of the Euribor must be higher than 30% of the family income.
For this group of families, the mortgage payment is frozen for twelve months and the maturity is extended to seven years. These families will be able to switch from a variable rate loan to a fixed rate one, being able to increase the duration of the loan up to 40 years. The bank will freely establish the interest rate to be applied to the new loan deriving from the novation of the previous one.
The Government estimates that, of the almost four million mortgages linked to the purchase of a main home, there are around one million Spanish families who could suffer a significant increase in the installment to be paid due to the increase in the Euribor. The application of the content of the amendments will depend on the number of banks that subscribe to the new Code of Good Practices, on their interest in respecting the commitment undertaken and, above all, on the request for novation of the aforesaid loans by the households concerned.
The code of practice established in 2012 was not well known at the time and its application was not significant in scope. At the time, the situation of families at risk of being evicted from their homes was improved by the moratoriums envisaged by law and mandatory for banks by the Government to block the evictions (evictions) of habitual homes occupied by defaulting debtors.
In the case of the new Code of Good Practices, the willingness of banks not to suffer a significant increase in the number of defaulted loans may be the main factor contributing to its relevant application. This application will also depend on the dynamism of the Control Commission envisaged by the new legislation for monitoring compliance.
Member of the Higher Council of Statistics of the INE. Doctorate in CC. Economics from the UCM (1977). He is Senior State Statistician, retired, and Certified Economist of the Bank of Spain, retired. He has been Minister of Economy of the Junta de Andalucía, president of the Banco Hipotecario de España, president of the Caja de Ahorros de Granada, president of the Social Council of the University of Granada and director of the University of Alcalá de Henares. He is currently a member of Economists Against the Crisis and the Platform for a Public Bank.
