If the Bank of Spain watch paying special attention to the new mortgageloans granted by financial institutions interest rate is too lowfor worrying about what might happen to cause loss Thus, the supervisor has determined that the rates of these new loans are (2.91% on average in December and 3.54% on average in March). increased less what you uploaded reference typesthe difference between the two persists “contraction” and constitutes potential risk for the industry. “We follow very closely to check if assets are following determining affordable prices“Confirmed a few weeks ago. Angel Estradathe institution’s director of financial stability.
This interest rates determined by housing loan interest rates referenceone is added to it margin encase different costs What does it mean for businesses to give credit? plus a cousin by, among others, default risk assumed customer. A small differential commercially attractive between both species earn a jobto be No problem when are reference rates they are stable, as it was years before the start of the inflationary spiral. However, it assumes that a risk price of money for banks rises fastas it has been since the middle of last year.
” cost effectiveness can be placed more easily than these operations very low levelsor to losebefore possible rallies between financing costs bank or impaired ability Paying off debtors” warned the Bank of Spain in its latest financial stability report. Therefore, a narrow difference between the mortgage rate and the reference interest rate high risk that the loan will result in loss for the bank if macro-financial conditions deviate from what was expected at the time of issuance of the loan. For example, if the business finds self-financing more expensive than expected due to an increase in deposit rates and an increase in deposit costs. wholesale financing (The issuances of institutions in the capital markets provided by the European Central Bank).
collapsed differential
The Bank of Spain makes its forecasts by calculating: each new mortgage rate according to an index known as issued – weighted by borrowed capital Interest Rate Swap (IRS)measuring the average interest, financial derivatives banks can contract don’t lose money if market rates rise or fall above certain levels. It is understood that this index reflects the cost of money at a certain maturity without a risk premium. Between 2004 and 2022median spread between new mortgages and the IRS 194.4 basis points (1,944 percentage points). However, it fell from 218.2 basis points at the end of 2020 to 157.1 basis points at the end of 2021, and barely fell from 127.1 basis points in the first quarter in 2022. 21.1 basis points in the fourth quarter.
From this it can be concluded that the increase in the official ECB interest rates to combat inflation has been in recent days. Faster to the IRS than new mortgage prices. Indirectly, therefore, the Bank of Spain deems necessary that loan types to buy a house go upConsistent with the central bank’s monetary policy tightening objective: make financing more expensive reduce the demand of economic agents and so bend the CPI. The supervisory body, in its recent report, noted that the decrease in variance was “tacitly a loosening of licensing standards Loans” mortgage, but predicts it will “Predictably only temporary”.
Thus, the institution “They react slower” more than market rates used as a reference to changes in monetary policy. Also, he claims that “stability” showing deposit type according to the reference rates in question, it may “segregate” the financing costs of the enterprises. However, he warns: tightening the financial environment predictably will move slowly too deposittherefore, interest rates are relevant loans adequately reflect cost financing and risks to businesses. A sharper recoil bank financing costs may fall to lower-than-expected levels, particularly fixed interest rate and with a reduced differential”.
necessary common sense
Very low mortgage rates good for customers take advantage of them, but dangerous for sustainability for the industry and therefore for all customers and society. so they can contribute to short-term results if they allow banks to gain business volume, but at the same time harms balance sheet quality and solvency in the long run and therefore ability to lend and thus finances the economy. Therefore, special attention is paid to the area of the Bank of Spain, which ensures the stability of the financial sector as a whole.
The drop in spreads that worries the Bank of Spain, yes, not accompanied someone’s relaxation by other banks award criteria mortgage. Thus, the supervisor should consider that such concession standards ” afflicted relatively stable prudent levels“Through 2022, both based on percentage represented by credit rRegarding the value of the propertythe weight of the fee payable in relation to to customer revenue. “To the expanding behavior of the real estate market in the first half of 2022, taking more risks of these dimensions,” he pointed out in his report.
2015 mortgage war
Between 2015 and early 2016, a war between banks for stealing a mortgage as a way to increase your turnover and gain profitability in the context of very low reference rates. HE Bank of SpainIn fact, it later passed a regulation that penalized the issuing organizations. lose a mortgage (if he price of a loan less than fair value at the time of issuance, the entity must record the difference as a loss in the income statement). However, it is not the same situation that exists now: this norm punishes entities that do so. set entry that a price does not cover coststhough now the prices are meeting them, Skintight by reference type.