Congress is discussing and voting this Thursday on the Principles of Good Practice to moderate the rise in interest rates on mortgage loans for primary homes and a package of measures adopted by the Cabinet on November 22 to improve the mortgage loan market.
After negotiating a little over two months with the bank employers’ associations (AEB, CECA and UNACC), the Council of Ministers, lighten the load more than one million homes that are potentially vulnerable or at risk of being vulnerable.
The manager has achieved a double commitment from the industry. On the one hand, assistance was expanded and strengthened for households covered by the 2012 Code of Good Practices aimed at restructuring mortgage lending of vulnerable customers. On the other hand, a new Code is created for “middle class families” at risk of vulnerability. The aim is the measures that financial institutions must comply with voluntarily but will become mandatory after signing, It will come into effect on January 1. These are the main measures:
New beneficiaries: “middle class”
The new code for the “middle classes” (according to the term used in the royal decree) will benefit mortgage-holding households with an annual income of less than three and a half times IPREM (29,400 euros per year) and committed by 31 December. 2022 for a habitual home acquisition at a price of up to 300,000 Euros, exceeding 30% of the mortgage load income and increasing by at least 20%. This new law is temporary and will be in effect until the end of 2024. Businesses offer them the opportunity to freeze the quota for 12 months (as CaixaBank recommends, according to this paper), a lower interest rate for the deferred principal, and an extension of the Loan term up to seven years. An example: debt 100.000 Euro and Euribor +1% remaining 20 years and current monthly payment 589.25 Euro. Extending the loan term for 7 years will reduce the monthly payment amount to 487.40. The savings are 101.85 Euros per month or 1,222.20 Euros per year. However, if 41,420 Euros of interest remain to be paid on the original mortgage during the 20-year life of the loan, this period will be extended by 7 years, increasing this amount to 57,917.60 Euros. “In short, the monthly fee has been reduced today, but you should always be aware of the cost in the long run, in this example this would mean an additional cost of 16,497 euros,” warns the Asufin bank user association.
Improvements for the most vulnerable
At the same time, various measures of the 2012 Code of Good Practice for debtor families with up to three times the income of IPREM (25,200 euros per year) have been improved. Thus, vulnerable borrowers will have the opportunity to restructure the mortgage at a lower interest rate during the 5-year principal grace period (Euribor -0.1% versus current Euribor +0.25%). They can also extend the life of the loan up to a maximum of 40 years. Likewise, the deadline for requesting a date for payment of the housing is extended to two years, and the possibility of a second restructuring is also considered if necessary. An example: The current installment of 360 euros for the 120 thousand euro loan, which was signed at the beginning of 2018 with Euribor plus one point interest rate and a repayment period of 30 years, will increase to 525 euros next year. However, according to the calculations of the Ministry of Economy, extending the loan term by 10 years and applying a five-year grace period will reduce this fee to 240 euros and save 285 euros per month.
wider collective
Another innovation is that the scope of assistance measures for the vulnerable family group will be expanded. In this sense, households with an annual income of less than 25,200 euros (three times IPREM) will be allowed to devote more than 50% of their monthly income to mortgage payments, but do not meet the current increase criteria. 50% of the mortgage effort can benefit from the Code and have access to a two-year grace period to amortize capital, a lower interest rate during the grace period, and an extension of up to 7 years.
An example: For a mortgage similar to the previous situation, these measures could allow the 525-euro installment concluded in 2023 to be reduced to around 305-euro with a monthly savings of 220-euro.
variable rate to fixed rate
The third package of measures is general in nature for approximately 3.7 million floating interest rate loan holders. Further reductions in expenses and commissions are expected to facilitate the transition to the floating rate: maximum commission for exchange The variable to fixed mortgage increases from 0.15% to 0.05% of the prepaid capital. Also throughout 2023 early payment commissions and the transition from a variable rate mortgage to a fixed rate mortgage. In addition, measures to promote financial education will be included in the plan and monitoring of the implementation of both laws will be strengthened.
First reactions from the bank
After the approval of the mortgage measures by the Council of Ministers, the main associations of financial institutions – AEB and CECA – expressed their support for the measures, in which the Bank of Spain also participated in the negotiations to prevent a greater impact of the measures. related to the solvency of the sector. Major financial institutions have also expressed their commitment to the new rules of good practice.
United We Can: “A deal that can be improved”
Third Vice President and Minister of Labor, Yolanda Diazassessed that the agreement with the bank could be “significantly improved”. From his perspective, the measures represent a “small step” that has nothing to do with United Podemos’s response to the rise in Euribor. “From the rise in Euribor to date, financial institutions’ estimated benefits from the rise in Euribor are €8 billion, so financial institutions are benefiting from the rise in interest rates more than ever before,” Diaz said. Also, the Minister of Social Rights, Ione Belarra, Via Twitter, he demanded “more ambitious and enforced measures for banks that allow us to support all families”.