New Mortgage Measures Aimed at Middle Class and Vulnerable Families
Congress is set to vote this Thursday on the Principles of Good Practice designed to curb rising mortgage rates for primary home loans and a cabinet package announced on November 22 to strengthen the mortgage market.
After more than two months of talks with the banking employers’ associations AEB, CECA, and UNACC, the Council of Ministers aims to ease the burden for more than one million households that are vulnerable or at risk of becoming so.
The government has secured a double commitment from the industry. First, it expanded and reinforced support for households covered by the 2012 Code of Good Practice aimed at restructuring mortgages for vulnerable borrowers. Second, it established a new Code for “middle class families” at risk of vulnerability. Banks will voluntarily comply, but the measures will become mandatory once signed, with implementation beginning January 1. The following are the main measures:
New beneficiaries: the middle class
The new code targets mortgage holders with annual income below three and a half times IPREM, which is 29,400 euros per year. Eligibility is limited to those who signed by December 31, 2022, for a primary home purchase up to 300,000 euros, with housing costs not exceeding 30 percent of income and an income increase of at least 20 percent. The statute is temporary and will stay in effect through the end of 2024. Banks are offered options such as a 12‑month payment freeze (as CaixaBank has suggested), a lower interest rate on deferred principal, and a loan term extension up to seven years. A representative example shows a debt of 100,000 euros with an Euribor plus 1 percent rate and a 20‑year term resulting in a monthly payment of 589.25 euros. Extending the term by seven years lowers that payment to 487.40 euros, saving 101.85 euros monthly or 1,222.20 euros annually. However, if 41,420 euros of interest remain on the original mortgage, extending the loan by seven years would raise total interest to 57,917.60 euros, translating to an extra 16,497 euros in cost over time, according to the advisory body Asufin.
Improvements for the most vulnerable
At the same time, several protections from the 2012 Code are enhanced for debtor households earning up to three times IPREM, or 25,200 euros per year. Vulnerable borrowers can restructure the mortgage at a lower rate during a five‑year grace period, with the rate set at Euribor minus 0.1 percent compared to the current Euribor plus 0.25 percent. The loan term can be extended to a maximum of 40 years, and the deadline to request a housing payment date is extended to two years, with the possibility of a second restructuring if needed. As an illustration, a current 120,000 euro loan with a 360 euro monthly payment at the start of 2018 and Euribor plus one percent could rise to 525 euros next year. By extending the term by 10 years and applying a five‑year grace period, the monthly payment could fall to about 240 euros, saving 285 euros per month.
Wider coverage
The scope of the measures expands to include more vulnerable families. Households with income under 25,200 euros, or three times IPREM, will be allowed to devote more than half of their monthly income to mortgage payments even if they do not meet the current increase criteria. Half of these borrowers could receive a two‑year capital amortization grace period, a reduced rate during the grace period, and a term extension of up to seven years.
For a mortgage similar to the prior example, these measures could cut a 525 euro monthly payment planned for 2023 to roughly 305 euros, delivering about 220 euros in monthly savings.
From floating to fixed rates
The third package addresses about 3.7 million borrowers with floating rate loans. The plan anticipates lower costs and fewer charges to ease the switch to fixed rates. The maximum commission for converting a floating loan to fixed is reduced from 0.15% to 0.05% of the prepaid capital. Throughout 2023, early repayment commissions and the transition from floating to fixed rates will be simplified. The package also includes measures to promote financial education and to strengthen the monitoring of both laws’ implementation.
Initial industry response
Following approval by the Council of Ministers, the main banking associations, including AEB and CECA, expressed support for the measures. The Bank of Spain participated in the negotiations to limit the potential impact on the sector’s solvency. Major financial institutions signaled their commitment to the new good practice rules.
A response from United We Can
Third Vice President and Labor Minister Yolanda Díaz argued that the agreement with banks could be significantly improved. She described the measures as a small step that does not align with United Podemos’s response to Euribor increases. Díaz noted that the gains to banks from rising Euribor amount to about 8 billion euros, while Social Rights Minister Ione Belarra, via Twitter, urged stronger and enforceable measures to support all families.
Attribution: Information summarized from official government and bank association announcements with context provided by economic analysis offices.