The increase in interest rates and the new policy of banks in housing finance are causing a very significant growth in mixed rate contracts. So much so that, according to the latest report of the Spanish Mortgage Association (AHE), of which Spain’s leading financial institutions are members, its market share doubled compared to last year.
Mixed types, as the name suggests, are a mix of variable and fixed types. In short, they are short (one to five years) or medium-term (five to ten years) loans that are initially subject to fixed interest and the remainder corresponding to variable interest. As AHE itself explains, “this type of loan stands as an alternative for consumers who want to maintain a fixed rate in the context of rising interest rates in the first years of the loan and are confident that rates will develop positively in the future” ».
Herein lies the client’s great dilemma: any long-term contract will likely see a state of high and low rates over the life of the loan. It guarantees a fixed, stable but more expensive monetary quota. in low-rate contexts, in which case variable benefit and as it is now, when the price of money rises and the mortgage payment becomes disproportionately more expensive, it is cheaper though it becomes the sword of Damocles. The mix allows you to pay a fixed amount in the first stage when more interest is paid—and especially at this time when Euribor rises—and hope that after that time the price of money drops and rates go down. variables are more useful then.
Mixed rates represented at the end of May of this year, the latest data recorded by AHE, accounted for 32.1% of all mortgage contracts, while at the end of 2022 they only reached 15.3%, close to half. The strength of this method has been against, above all, fixed-rate contracts, which were stellar in years when the money price was zero percent. percentage because they implied more returns for the bank than variables (which they were shattered) but also benefited many customers who were able to get a flat rate at a very competitive price. Fixed rate contracts, which amounted to 5.7% of the total in 2015, reached 61% in 2022. In May 2023, it was 45.6%.
Variables of 62% in 2015 averaged 24.6% in May, almost a percentage point higher than in 2022, as the bank relies on them by reporting higher income as interest rates rise to 4.25%.
Price:%s
The strength of mixed-rate contracts pays off in price as they are currently the most burdensome contracts. Thus, at 4.37% at the end of May, it is well above the 3.2% of the fixed rate and also slightly higher than the variable rate of 3.8%. In all three cases, the increase is substantial compared to the end of 2022, because at the end of that exercise the mixed ones were at 2.81%variable at 1.91% and constant at 1.76%.
Suspicious real estate assets continued to decline in the first quarter of 2023, “although at lower rates than in previous quarters and subject to upside risks from the economic and monetary effects of inflation,” according to AHE. The bad loan ratio in the housing portfolio remained at 2.3%, just one percent above the previous quarter’s and 0.6 percentage points lower than the one-year rate. The bad debt ratio for real estate activities increased from 3.8% observed in the fourth quarter of 2022, or even 4.3% in the first quarter of 2022 to 3.4% in the first quarter of 2023.
Rising interest rates put brakes on mortgage operations
AHE observes a change in trend in the mortgage market as the rise in loan costs progresses. Thus, data for the first four months of 2023 show that an average of 5,000 fewer mortgage transactions were recorded per month compared to the same period of 2022. 45,000 annual contracts at the start of the year to place their stats from last April below 36,000. Relatively speaking, the variation turned into: There was a 9.5% decrease in the number of transactions and a 5.3% decrease in the amount given for housing loans.