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Spanish banks agree on mortgage measures to help lower earners
The aid should benefit more than one million mortgage holders in Spain from next year
The Spanish government and the major banks in Spain reached a momentous agreement on Monday November 21 that will greatly reduce mortgage repayments and provide more options for those on lower incomes.
From January 1 next year, around one million households will benefit from the changes, according to the Ministry of Economic Affairs, which aim to “preserve financial stability" in the face of the ECB’s interest rate hikes.
Official data show that an average mortgage at a variable interest rate (150,000 euros over a 30-year term) cost around 448 euros last October. This same repayment has increased by 50% this year to 675 euros.
Measures for the most vulnerable
The main body of the agreement alters the existing Code of Good Practices to include mortgage holders with annual incomes of up to 25,200 euros – this amount was previously set at 24,318.
The current Code stipulates that those who qualify as lower income earners:
- Can pay interest-only for a maximum period of five years
- Can benefit from an interest amount that is limited and extend their mortgage term to 40 years
- If, with these measures, the mortgage still accounts for more than 50% of their income, a reduction can be requested from the bank. If this is refused, the owner can hand back the keys to the bank to pay off the loan.
Under the new regulations, people with an income below 25,200 euros per year and who allocate more than half of their income to pay the mortgage will now be able to benefit, but a few key changes have been introduced for this group:
- The interest-only period has been reduced to two years
- They can extend their mortgage term by a maximum of seven years
- The ceiling for the maximum interest rate during the grace period has been reduced from a differential of 0.25% plus the Euribor to one of -0.1% plus the Euribor.
The Ministry has calculated that a family with a mortgage of 120,000 euros and a monthly payment of 524 euros after the interest rate review will see its payment reduced by more than 50% during the 5-year grace period.
Vulnerable middle classes
The changes to the Code of Good Practices have also been extended to mortgage holders with a maximum annual income of 29,400, and to families who spend more than 30% of their budget on repayments.
Although both of these groups will have to be able to prove that their mortgage burden has increased by at least 20%, their banks will have to offer to freeze their repayments for 12 months, meaning they can have a year where they pay the same instalments every month.
At the end of the 12-month period they will be offered a lower interest rate on the grace period, which will need to be paid back at the end of their term.
These mortgage holders can also opt to extend their overall repayment period by seven years.
Additional measures
- Bank expenses and commissions will be further reduced to encourage customers to switch from variable to fixed rates
- Charges for early repayment and for switching to a fixed rate will be scrapped in 2023
- Financial education and monitoring will be offered to customers
Image: Pixabay
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