More signatures, price wars and a return to the variable rate
The mortgages saved furniture in 2019 and, unlike the sales, managed to close the year with increases. According to INE data, the formalization of loans for the purchase of housing last year remained around 357,800 operations, which translates into the best data in eight years, after rising 2.7% year on year. This is the mildest rise since the economic recovery began and, looking at the evolution of housing transactions, we might think that the mortgage market is bound to record red figures in the short term. However, experts are ruling out that scenario for the time being.
“The new mortgage law that came into force in June is outdated in terms of implementation and it is logical that more mortgages will be granted this year, although everything is conditional on the foreseeable fall in sales transactions not being high,” believes Juan Villén, head of idealist/mortgages.
In the same vein, Enrique Benavides, manager of the Spanish Mortgage Association (AHE), stresses that “the profound changes introduced by the mortgage law affected all those involved, which in the months of July and August meant a significant slowdown in the processing of mortgage loans. Today, we can consider this stage to have been overcome and we can only speak of a normalisation of the trend that was already underway”. He adds that this trend translates into “a slight slowdown in growth, possibly influenced by the economic and political situation in the area”.
On the other hand, Mercedes de Miguel, Gesvalt’s Operations Director and Head of Research, estimates that “the latest data and macroeconomic projections predict a growth that will probably be close to 2%, as long as the current financing conditions are maintained”.
Therefore, and as in the case of sales and housing prices, experts are convinced that 2020 will be a year marked by moderation and prudence.
More mortgage war
Another factor that, according to experts, will mark the year is that the banks’ interest in increasing the granting of mortgages will continue, at a time when low interest rates are weighing down their business margin. And this commitment will end up benefiting customers.
In this sense, José Luis Martínez Campuzano, spokesman for the Spanish Banking Association (AEB), insists that “the objective of the banks is to continue helping their clients to materialize their main asset decision: the purchase of property. And they do so under very favourable financial conditions, in an environment of high competition and with maximum legal security. In the future, they will maintain the supply of financing, although the demand will depend on the economic evolution and the behaviour of unemployment”.
The manager of the Spanish Mortgage Association, for his part, stresses that “it is to be expected with considerable certainty that, in a highly competitive market such as the Spanish one, the pressure on prices and interest rates will continue to be very great,” while the head of idealist/mortgages goes one step further and insists that “banks continue to compete fiercely for customers, so we will continue to see very competitive prices and, above all, the possibility of negotiation in some banks below the advertised conditions.
At the moment we are seeing a multitude of offers of variable loans at an interest rate of less than 1%, while their ‘rivals’ are moving below 2% (and below the historical average of the Euribor). In 2019, in fact, the average interest rate on mortgages is at an all-time low.
But in addition to being ‘cheap’, mortgages are becoming more and more complete. On the one hand, and as established by the new mortgage law, financial institutions are obliged to provide a set of documentation to customers, as well as an offer of the mortgage with and without bonuses (the bank often lowers the interest rate if the customer pays his salary or if he contracts home insurance). In addition, financial institutions are also reducing fees and have put aside the most controversial clauses.
or all these reasons, stresses Villén, “using tools and services that allow you to compare offers and find out about the real options available is more important than ever, and there are free services that help you get the best mortgage”.
The variable rate recovers strength
While waiting to see if mortgage rates continue to fall, experts anticipate a growing consumer interest in variable loans.
Villén, for example, suspects that “the fixed rate may have peaked after reaching historical highs during the past year, because the foreseeable lengthening of the period of very low rates is causing many consumers to opt for the variable ones (which still represent significant savings in the short term). All this is more evident in operations of greater amount and for customers with higher incomes, who are more inclined to opt for the variables”.
We should not forget that the European Central Bank (ECB) maintains the price of money in the Eurozone at 0.0% (the level at which it has been for four years) and is in no hurry to return to monetary normality. Nor are we expecting major changes in the Euribor, the reference indicator for most mortgages in Spain, which continues to be in negative territory and could remain below 0% at least until 2022, according to the market consensus.
“Nothing in the current European economic scenario seems to indicate that interest rates will rise in the short term, so competition among financial institutions is likely to maintain the current strategy and continue to offer low rates. And it is very possible that the situation of the Euribor will have a strong impact on the choice of the type of mortgage by future buyers. At present, and in a situation of historical minimums, everything seems to point out that this indicator will remain in negative values, which could encourage buyers to opt for a variable rate mortgage, especially if they have the capacity to pay it off in a few years”, concludes the director of operations and head of research at Gesvalt.
Source consulted in Idealista on March 3rd https://www.idealista.com/news/finanzas/hipotecas/2020/02/28/780522-que-podemos-esperar-de-las-hipotecas-en-2020-mas-firmas-guerra-de-precios-y-vuelta-al