The good news is that Spanish households are responding with "resilience" to interest rate increases. There are even buoyant signs, such as that half of the homes are bought at random or that the price has risen by surprise in the second quarter above inflation. The bad news is that behind this apparent prosperity a different dynamic is hidden: requests for help from mortgage holders have reached a record and one in seven households already suffers from an excessive financial burden.
According to the latest financial stability report from the Bank of Spain, 14.6% of households, or one in seven, are on the verge of their financial burden exceeding 40% of income, which represents an increase of 4 .2 points compared to the previous analysis, carried out in April. This threshold, from which the alarms begin to sound, is being reached to a greater extent "in the second and third income quintiles", that is, among the middle and lower classes, warns the general director of Financial Stability, Regulation and Resolution of the Bank of Spain, Ángel Estrada.
So far this year, 42,000 mortgage holders have applied to benefit from the aid of the code of good practices in force since 2012, extended since the beginning of the year to incomes of less than 29,400 euros. Measures to ease the burden on applicants include waiting periods and refinancing.
The amount of aid requested since January is 5,367 million, which is equivalent to 127,785 euros per mortgage holder. It is a record that exceeds the almost 3,000 million per year registered between 2014 and 2016, and is mainly due to the fact that the scope of beneficiaries has expanded. Of the amount, some 2,500 million are attributed by the Bank of Spain to the new aid from the Government.
However, the report shows the high percentage of rejection of applications. 40% were rejected, in 90% of cases for not meeting objective conditions, and so far only 10% have been executed. The credit on which requests for help are made is equivalent to 0.4% of mortgages in Spain.
"The analysis period has still been short, there has not been time to analyze the impact of the measure," says Estrada. The level of execution is very low compared to the rates of over 50% between 2014 and 2016.
Despite these danger signs, the Bank of Spain's financial stability report generally paints a good picture for individuals, or at least better than that of the public administration. Their indebtedness is reduced, amortizations increase, there is still savings and income in gross terms has increased by 8% in the last year.
However, he warns that this bonanza responds to the inertia of recent quarters. "The path of improvement in the economic situation that households perceived until July would have been truncated, according to the most recent qualitative data," the report states.
"The transmission of interest rate increases to household mortgages has not yet ended," says Estrada. "There are still 30% of households whose interest rates will be increased by more than one hundred basis points," she says.
About 70% of loans for the purchase of a home are at a variable rate and the rise in mortgage prices still "represents about half of the rise in the Euribor," he says. For now, the transfer has been 234 basis points, bringing the average cost of loans to 3.4%.
One of the trends that the Bank of Spain has observed in its autumn report is the high percentage of homes that are purchased in cash, without resorting to a loan.
If home sales fall by 15% in the second quarter, new mortgage credit falls by 26%, to the point that "the situation has arisen that more homes have been sold without a mortgage than with one."
Despite the rate increases, the volume of sales exceeds that before the pandemic and in the second quarter an increase in housing prices of 3.6% was observed compared to the previous quarter, above general inflation.
"House prices had been slowing down and the latest data, in the second quarter, has experienced a rebound. We are analyzing the reasons to confirm if it is a specific event that will be corrected," says Estrada.
"This increase in prices is fundamentally explained by the upward behavior of the price of new housing, which could reflect, among other factors, the shortage of housing supply and the transfer of past strong increases in the costs of construction materials," indicates.
The price rebound contrasts with the trend so far, since "housing prices maintain a notable slowdown with respect to the dynamics observed in 2022," he indicates.
Where the Bank of Spain does see the most pressing problems is the public accounts and, specifically, the persistence of the deficit and the high volume of debt. These elements "continue to represent a significant element of vulnerability for the Spanish economy, particularly in the face of potential scenarios of abrupt changes in the markets' risk perception."
The institution calls for fiscal policy to "comply with EU recommendations, so that debt and the structural public deficit are gradually reduced." "To do this, the design and implementation of a fiscal consolidation program sustained over time is required," he says.
"The implementation of an ambitious structural reform package would contribute to the objective of reducing fiscal imbalances by increasing the potential growth of the economy," he states.
