Spanish households are working hard to lower the mortgage as much as they can, now that interest rates are rising and many of them keep savings from the pandemic. This thesis has already been defended by the banks in their recent presentations of results and is confirmed by the latest data from the Bank of Spain, which show a repayment rate unknown since 2009, capable of reducing the volume of mortgage debt to the lowest level in eighteen years.
In June, the outstanding balance of the mortgage debt of individuals was 501,577 million euros, 13,352 million less than in the same month of 2022. The figure implies a reduction at an average rate of 1,112 million euros per month, a speed which has not been reached since 2016, when the country was recovering from the economic crisis and the housing market returned to normal.
The current debt is also the lowest since 2005, when it stood at 450,135 million euros and was preparing to star in a rapid escalation. They were times of real estate speculation in which households began to borrow without sufficient control, reaching just five years later, in 2010, the all-time high of 656,854 million.
From that moment, after the bursting of the bubble, the debt began to decrease little by little, until it was 23% below that level in 2023. What households now owe to the bank for their home is equivalent to 36% of GDP, which is 1.36 trillion, while in 2010, when national wealth was 1.07 trillion, it amounted to 61%. A full blown deleveraging.
The data on the outstanding balance of this debt includes both amortizations and new loans, but it is possible to know the former if the amount of the newly subscribed mortgages is subtracted each year. The result is that in the twelve months prior to June, households have reduced the principal of their mortgages by 70,652 million euros, a figure that had not been reached in fourteen years, since 2009, when 72,997 million of brick debt were repaid. . In other words, families are now paying off their mortgages at a monthly rate of 5,887 million euros. And the debt would be falling more if it were not for the fact that new mortgages are signed at a rate of 4,775 million euros per month.
The explanation for this desire to reduce the mortgage as much as possible is found in the rises in interest rates, which have already risen to 4.25% and have placed the Euribor at 4.15%. Variable rate loans have become significantly more expensive and are presented as one of the main threats to the domestic economy. According to the Spanish Mortgage Association simulator, a debt of 150,000 euros at 25 years at Euribor plus 1% has gone from having a fee of 565 euros before the rate increases, to 890 euros now.
In its latest report on the financial situation of households and companies, the Bank of Spain affirms that, in the absence of an attractive return on bank deposits, individuals have preferred to take out their mortgages. "The increase in the differential between the cost of outstanding loans at a variable rate and the expected return on lower-risk investments has favored an increase in mortgage repayments," he says. “This, together with lower loan origination, has translated into a reduction in outstanding bank credit balances,” he adds.
Another piece in this great deleveraging of families is in the signing of new mortgages, which falls back because the cost of credit increases. Between June 2022 and June 2023, new operations have amounted to some 57,300 million, when throughout 2022 they were 65,220 million, and "since last summer" there has been a "notable decrease" in "new financing" , says the Bank of Spain.
In the historical comparison, now the anomalies of the years of the housing bubble are even more surprising. Only in 2006, the Spanish signed mortgages for more than 170,000 million euros, and between 2005 and 2007 they were loaded with a debt of almost 470,000 million.
That experience may be behind the prudence with which many mortgage holders now respond to interest rate rises. Both the CEO of Santander, Héctor Grisi, and the CEO of BBVA, Our Genç, stated separately in the respective half-yearly results presentations that consumers in Spain are reacting to the change in monetary policy by accelerating mortgage repayments. In the case of BBVA, credit investment fell by 1.4% in the country due to the fact that these amortizations exceed the volume of new credits.
The CEO of CaixaBank, Gonzalo Gortázar, considered that, with the information handled by the bank, the Euribor should trend downward in the coming months. Its gap continues to be high with respect to the remuneration of bank deposits, located in June at a measure of 2.22%, according to the Bank of Spain.
Not all the money has of course gone to the mortgage. So far this year, savers have allocated 29,000 million euros to investment funds, which already accumulate 335,000 million in Spain, according to data from the Inverco association. In addition, many individuals have taken the opportunity to buy Treasury bills, with returns of around 3.6%, still well above the rate of bank deposits.
