The Record Rise in Interest Rates in Spain Triggers Mortgages Signed for Five Years

The average amount of the mortgages constituted in the month of May for the purchase of a home was €141,798, 4.6% lower than that of May 2022. According to the National Institute of Statistics, the average interest rate was 3 .15% (2.79% for variable-rate loans and 3.40% for fixed-rate loans), and the average repayment period of 25 years.

That is what the statistics say, after in the month of May the number of mortgages constituted on homes rose to 33,398, 24% less than in the same month of the previous year, for an accumulated amount of €4.74 billion, less than 27.5% as of May 2022. The Bank of Spain has just advanced the data on the capital lent for the purchase of a home to Spanish families in the month of June: €5.28 billion, 18.01% less than in the same month last year.

George Bernard Shaw said that “Statistics is a science that shows that if my neighbor has two cars and I own neither, each of us has one.” The appointment is relevant because when removing the statistical data from the Bank of Spain, it can be seen that the amount of the mortgage loans granted with a repayment period of up to five years represents 42.42% of the total loan, while that of the loans at more than ten years, the most usual (so it seemed) represents 44.09%. Not everyone has a typical mortgage, let alone such a long cancellation period.

According to one of the mortgage simulators that can be used on the internet to get an idea of ​​the monthly cost of a loan for the purchase of a home, a mortgage of €142,000 (the one given by the INE as an example) for 25 years and a fixed interest rate of 3.49% would pay a monthly installment of just over €700. That same amount of money and at the same rate, but with a repayment term of five years, would have a monthly cost of €2,566. During its first year of validity, the holder of this loan would have repaid almost €26,400 of principal.

Extending the amortization period means having to pay the bank an exponentially higher amount of interest, although, in exchange, the citizen can live in a more financially comfortable way during the month. Those who can afford it reduce the number of years of validity of the loan to the maximum, but that is something that is within the reach of a very small number of privileged people and families who sell their current home, and the income obtained is used to buy another residence, greatly reducing the amount of the mortgage and the cancellation period.

We must never lose sight of the fact that the average gross salary of a Spaniard is €2,126 per month, according to the Quarterly Labor Cost Survey of the National Institute of Statistics for the first three months of the year. A monthly fee of €700 would already absorb a third of that worker’s income.

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Evolution of mortgages

During the first six months of this year, mortgage loans have been signed in Spain for a combined value of €28.1 billion, of which €12.2 billion corresponded to those with a maximum repayment period of 5 years, representing 43 49% of the overall figure. In the same period last year, loans for €10.9 billion were formalized, 32.1% of the total. 

As a counterpart, the amount of operations for more than 10 years has been reduced from representing 63.75% of all those carried out in the first six months of 2022 to representing 46.63%. This is a significant decrease of 35.3%. In addition, there has been an increase in loans for between 5 and 10 years, which today represent 9.88% of the total when in 2022 they barely accounted for 4.14%. They are the consequences of the vertiginous rise in the price of money.   

Only in the month of June, according to data from the central bank, mortgage loans were signed in Spain for a value of €5.28 billion. Of this amount, €1.1 billion corresponded to loans with a repayment period of one year, which represented 20.89% of the total; €1.14 billion were signed with between one and five years of amortization, 21.53% of the total; €712 million had a period of between five and ten years, and €2.33 billion, 44.09%, of more than ten years.

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(Featured image by AlexanderStein via Pixabay)

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First published in vozpopuli. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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