The Rise of Fixed Rate Mortgages: A Look at Spain’s Changing Mortgage Market.

In the first two months of this year, more than 9,400 mortgages changed their interest rate terms and 3,469 abandoned the Euribor reference.

Last year, according to the National Institute of Statistics 608,567 mortgages signed on rural and urban properties and a total of 463,614 on houses. In the first two months of this year, 95,435 mortgages were registered on rural and urban real estate and 73,335 on houses.

The numbers of these first two months are something contradictory and do not allow us to venture a prediction about the future behavior of the industry. Compared to the previous year is the number of mortgages on real estate by 4.6% and down 1% year-to-date. In housing construction, the number of operations is 2% lower than in the same period of 2022 and 0.4% higher.

However, there is one fact that stands out strongly in the latest statistics, especially since the beginning of last year: it is Mortgages with changes entered in the land registers are. For the whole of 2022 they amounted to 151,535, of which 82% corresponded to novations (changes made with the same financial institution), 4.1% to change of company (subrogation to the creditor) and the remaining 14% to change of owner of the mortgaged Real estate, subrogation in the jargon of the sector.

Of the 151,535 mortgages that changed the original terms when they signed, they did so 42,085 to change interest terms. They make up 27.8% of the total. In the first two months of the year, 23,767 mortgage loans were modified, of which 9,404, 39.58%, had interest rates as a protagonist.

And it is that since inflation woke up from spring 2021 things started to change. Then he reached Euriborthe main reference index for mortgage loans in Spain, its lowest historical level: -0.505%, a terrain that is negative in which he “lived” since March 2016. A year later, in March 2022, it exited this range and hasn’t stopped rising since: from +0.013% in April last year. To 3.757% with which it closed April. This accelerated growth is supported by the increase in mortgage exchange business.

The more than 9,400 amendments to the terms signed in January and February of this yearrepresent an increase of 23.5% compared to those in the same months of the previous year. And the fact is that the Euribor was still negative at the time.

In the first two months of this year a total of 3,469 variable-interest mortgages were converted to fixed-rate mortgages. In February, of the 11,213 mortgages that changed their starting conditions, 39.7% were due to changes in interest rates. After the change in terms, the proportion of fixed-rate mortgages rose from 13.5% to 46.7%, while the proportion of adjustable-rate mortgages fell from 85.4% to 52.1%.

Fixed-rate mortgages are a relatively young banking product. Financial institutions began marketing it massively a few years ago, with the aim of attracting customers who feared a surge in the official price of money, which was only delayed by the pandemic. With the catch of knowing how much money will be paid each month throughout the mortgage repayment period, they managed to attract the most conservative buyers to begin with. Then almost everyone else.

Today it is the majority option. According to the latest data from National Institute of Statistics 65.7% of mortgages written for home purchases in February (35,900) were at a fixed rate and 34.3% awarded at a variable rate. According to INE, the average interest rate at the start of February was 2.7% for adjustable rate mortgages and 2.96% for fixed rate mortgages. A little clearer, but more predictable.

In 2013 and 2015 the proportion of fixed-rate mortgages was almost one testimonial: between 4.2% and 6.9% by 2014 and between 8% and 10% a year later. Things started to change in 2016 when the European Central Bank, then chaired by Italian Mario Draghi, cut the official price of money in the eurozone to 0%.

Already this year, more than a third of the mortgages signed to buy a home were at a fixed rate. In 2019 and 2020, the percentage jumped to 43% to 48% and will continue to grow from there until it reaches its maximum rate in July 2021, when three out of four home-buying loans are written at a fixed rate.

Bild: Copyright: andreypopov