The reference index for mortgages in Spain remains aligned with levels seen a decade and a half ago, before the last major financial downturn. In short, variable-rate loans have shown a notable uptick. When a health crisis strikes, it brings a wave of government measures designed to ease the pressure on borrowers facing hardship, including discussions around tools like Euribor and related challenges.
State aid: Code of Good Practice for Banks
Royal Decree No. 6/2012, issued on 9 March, established urgent protections for underfunded mortgage borrowers and created the Code of Good Practice. This framework includes recommendations that help facilitate loan payments. In practice, about 50 financial and credit institutions joined these initiatives voluntarily.
The government is evaluating vulnerable households that fall inside an exclusion threshold, based on criteria such as the size of the family unit, annual income under 29,400 euros, and whether the mortgage burden has risen by more than 20 percent or accounts for more than 30 percent of net household income.
Another option considers family incomes not to exceed three times the IPREM, the Public Income Indicator, for a payment schedule of fourteen annual payments. In 2023 this amounts to 8,400 euros per year, implying a maximum income of 25,200 euros for this scenario. Additionally, the monthly mortgage payment must have risen by at least 50 percent within the last four years.
The government also lays out benefits based on additional provisions: the loan must be tied to a primary residence and initially not exceed 300,000 euros. The lending partner and the creditor must be among the institutions participating in the Code of Good Practice.
What regulated institutions offer vulnerable borrowers
Institutions adhering to the Code of Good Practice propose a tiered set of actions tailored to each case. First, for vulnerable borrowers with insufficient capital, a restructuring can extend the total payback period up to 40 years and may include an interest-rate reduction for five years.
Second, if the previous restructuring is inadequate, lenders can make an offer that effectively erases the debt. Finally, if neither of the first two approaches reduces the burden to affordable levels, debtors may pursue a settlement with the lender. Acceptance of the settlement can be seen as a viable path to resolution when other options fail.
In the second scenario, families retain their living space for a period of two years while maintaining an acceptable income.
What do the rules offer the ‘middle class’?
For family units where annual gross income is under 29,400 euros, assistance is available for loans where the burden exceeds 30 percent and has increased by at least 20 percent as follows: a temporary freeze of monthly loan payments for one year, a corresponding interest-rate reduction for the same 12 months, and a total loan term not exceeding 40 years.
The measures aim to stabilize monthly obligations while preserving the household’s housing stability during times of financial stress.
ICO guarantee line for new mortgage holders
Since May 2023, the government has issued ICO guarantees covering 20 percent of new mortgages for younger buyers under 35 and for families with dependent children, with no age limit. This support is designed for applicants who demonstrate the ability to repay and the need for a home, yet lack sufficient savings to log the purchase. Citation: official program guidance.
In addition to age or dependent-child requirements, each applicant must earn less than 37,800 euros per year, which is up to 4.5 times the IPREM. With two earners, the limit is multiplied accordingly.
The home must be the applicant’s permanent residence and meet a minimum energy rating of D. Interested parties can inquire about this assistance through the financial institution that is handling the mortgage. Citation: program guidelines.