Despite the surprising resilience of mortgage portfolios, recent data show that delinquency and high-risk loans in Spain did not spike as Euribor rose. In fact, the aggregate defaults and risky mortgage accounts currently total 36.359 million euros, according to the latest Bank of Spain figures as of June. The trend remained slightly favorable compared with March 2022, even as Euribor crossed into positive territory for the first time in six years the previous month.
Bad-mortgage collections were positioned ahead of the summer season. The total stood at 10.944 million, a figure modestly above the first quarter by 343 million euros and 3.2% higher, which breaks the prior downward trend. Yet these amounts remain well below March 2022 levels, when the volume reached 2.741 million and a decline of about 20% was recorded. In mortgages flagged for special supervision due to elevated risk, the balance rose compared with the first quarter of last year to 2.656 million, an 11% increase, but fell in June versus March by 25.415 million, a 1.5% drop.
On the surface, the absence of a rise in non-performing mortgages in the current climate could be seen as good news. Yet the Bank of Spain cautions that there is no room for complacency. Official ECB rate hikes have been in play since mid-2022, with a cumulative impact visible over the 18 to 24 months that followed. At the same time, many households continue to struggle with income reductions linked to job instability, which can delay mortgage payments for extended periods. Although the labor market has shown resilience and Euribor has begun to ease as markets anticipate potential ECB rate cuts in 2024, it remains unclear how family finances will adapt to a slower growth scenario in Europe.
Plan for those with mortgage
The possibility of rising payment difficulties has prompted authorities to extend aid measures for mortgage holders who were already in trouble. In November 2022, agreements were reached with banks to maintain support, though demand has fallen short of expectations. The vice president of the government indicated that she would meet with banking leaders and the Bank of Spain to expand the suspension of fees for modifying mortgage terms until 2024, with a move from variable to fixed rates and early repayment options slated for 2023. At the same time, income limits that determine eligibility for the good-practice code on mortgage relief for middle-income families were raised from 29,400 euros (about 3.5 times the average) to 37,800 euros, broadening access to relief measures.
Both the Bank of Spain and sector representatives have expressed reservations about adding further relief. There was talk of delaying additional measures, as some officials warned that it might be premature. Still, the governing body noted that banks should exercise caution and leverage the profit uptick driven by Euribor to strengthen capital and provisioning. The overall aim is to increase banks’ capacity to withstand a potential rise in defaults. So far, institutions have shown limited enthusiasm for expanding these measures, and some observers have warned that the credit sector may need to tighten rather than loosen, particularly in the context of an uncertain economy (Pablo Hernandez de Cos, Bank of Spain president, and Margarita Delgado, deputy governor, comments at recent industry events).
wake up call
The Bank of Spain’s second in command has urged banks to scrutinize lending and surveillance practices more closely. The concern is that the housing and commercial loan portfolios in Spain and across the euro area may not be captured accurately by existing information systems. Early warning indicators are essential to detecting deterioration in financial conditions, especially if the economy slows further. Even if some European economies experience a technical recession, the risk pool of debtors could expand, or at least their share of overall lending could rise, according to the official analysis.
European banks have reduced their specially supervised loans by 5.8% from the peak reached last September, according to data from the European Banking Authority. The total for supervised loans now stands at 1.431 trillion euros since last June. Spain ranks fifth among 30 countries in the EBA analysis for the share of special surveillance loans, with 6.8% of total loans, compared with 9.1% on average. The late-payment rate remains higher in Spain at 2.9% versus 2.1% in the broader European dataset. When both components are considered, Spain’s credit quality sits above the average, but the country carries the heaviest provisioning against the assets in question, at 51.7% versus 48.3% for the Eurozone average (European Banking Authority data). This combination underscores a cautious but importantly resilient landscape for Spain’s mortgage and consumer lending sectors (EBA lending study, 2023–2024).)