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MORTGAGES

How Spain will help homeowners with rising variable mortgage rates

The Spanish government and the country's banks have agreed upon a set of measures to help protect more than one million low and mid-income families from rising variable mortgage rates.

How Spain will help homeowners with rising variable mortgage rates
New measures to help vulnerable families with mortgage repayments. Photo: JAIME REINA / AFP

The plan was announced on Monday November 21st by Spain’s Ministry of Economic Affairs, which said that the agreement “will preserve financial stability” in the face of the sharp rise in interest rates that have been applied by the European Central Bank since August.  

The agreement still has to be brought before the Spanish Cabinet on Tuesday November 22nd, before its final approval.  

The deal will help alleviate the effects that high interest rates are already having on variable mortgage bills.  

For example, a person with a €150,000 mortgage at a variable rate to be paid over 30 years spent €448 in October last year, but the same mortgage this October (2022) was €675, which is 50 percent more.

Three in every four mortgages taken out in Spain are variable rather than fixed. 

READ ALSO: Why mortgage payments in Spain could increase by up to €120 a month

What are the new measures and who will they help?

The agreement will help families who earn less than €25,200 per year. They will be able to benefit from an improvement to the Code of Good Practices, which the banks agreed with the former right-wing Rajoy government in 2012.  

The code is currently limited to those with a maximum income of €24,318, but the new agreement aims to increase this.  

Those who benefit from the improved code will:

  • Be allowed to pay only the interest on their loan for five years.
  • Will have the maximum interest on their loan limited.
  • And will have the period in which to pay back the loan extended to 40 years. 

If after these three measures are applied, families are still having to pay 50 percent of their household income to mortgage repayments, then they will be allowed to request a reduction from their bank. Keep in mind though, the bank can refuse this request.  

Finally, if this is not enough or the bank refuses, families will receive a loan in order to help pay their mortgage bills to the bank.  

Previously, families could only benefit from the Code of Good Practices if there had been a significant alteration in their financial situation in the past four years.

This meant that many people were not eligible because the problem had come from the increase in mortgage rates, rather than a change in their own financial situation.

The new measures will also reduce the maximum interest rate that households who benefit from the code will have to pay. Specifically, the maximum will be reduced from 0.25 percent plus the Euribor to -0.1 percent plus the Euribor.

Conditions for new homes will also be included but these will be less favourable. The time in which they have to repay the interest will be reduced to two years instead of five and they can extend the repayment period to a maximum of seven years.

READ ALSO: How to get a mortgage in Spain if you don’t have a job contract

What effect will this have on mortgage repayments?

Spain’s Ministry of Economic Affairs believes that a household with a mortgage of €120,000 and a monthly payment of €524, will now see their bill reduced during the five-year grace period by more than 50 percent down to €246.

What about mid-income earners who don’t qualify?  

The measures will also introduce a new Code of Good Practices that focuses on the middle class. The objective is that these families will have “a more gradual adaptation” to the new interest rates.

This will be extended to those who earn up to €29,400. In addition, families who allocate more than 30 percent of their income to mortgage repayments will be able to benefit from it, although they will have to demonstrate that their mortgage burden has risen by at least 20 percent.

For these middle-class earners, the banks must offer a freeze on payment increases for 12 months, so they will continue to pay the same bill for one year.

Once that year has elapsed in which the instalments will not be able to rise, they will be offered a lower interest rate on those twelve months that have been frozen, which they must pay at the end of the loan period.

They will also have the possibility of extending the term of their mortgage by seven years.

Is there any other financial help for those struggling to pay their mortgages?  

Yes, other new measures being introduced include expenses and commissions being reduced to facilitate the change from variable to fixed-rate mortgages.  

READ ALSO: How to change from a variable to a fixed mortgage in Spain

Fees for early repayment and changing your mortgage from variable to fixed rate will also be eliminated during 2023.  

The two Codes of Good Practices are expected to be available from January 1st 2023, and will be voluntarily adhered to by financial institutions. However, if the banks sign the agreements, they will be obliged to comply.

The first Code of Good Practices approved in 2012 was signed by almost all credit institutions in Spain. 

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For members

PROPERTY

Why Spain is unlikely to ever ban foreigners from buying property

After several regions around Spain have attempted to bring in limits on property purchases by foreigners, members of Spain's government coalition have even started floating the idea of an outright ban at a national level.

Why Spain is unlikely to ever ban foreigners from buying property

In recent years several regions around Spain have attempted to put limits on foreigners buying homes and clamped down on tourist rentals. These are mainly in areas traditionally popular with foreigners, and many have become places with highly inflationary property markets.

In 2022 Canary nationalist political party Nueva Canarias demanded the regional government address the large number of property purchases by non-residents in the archipelago, and even suggested a limit on the number of properties that can be bought by foreigners altogether in the popular holiday islands.

READ ALSO: Will Spain’s Canary Islands limit sale of properties to foreigners?

Property prices have surged across Spain in recent years, sparked in part by an influx of post-pandemic purchases by foreigners, as well as tourist accommodation geared towards wealthy remote workers and digital nomads pushing up rental prices and pricing out locals. Increasingly, landlords will buy properties with the aim of converting them into Airbnbs, thus removing them from the pool of available (and affordable) housing stock for locals.

This comes after Spain’s other archipelago, the Balearic Islands, also started this same debate in November 2022, with the regional Senate agreeing to discuss solutions.

In the two decades from 2000-2020, the islands’ population grew by 50 percent – rising from 823,000 to 1,223,000 inhabitants. Around a third (32.67 percent) of property purchases in the Balearics are made by foreigners, and of those 57.4 percent are residents, while the remaining 42.6 percent are non-residents.

National ban?

But it’s not just a regional issue. In 2024, the debate rumbles on in parts of Spain particularly affected by foreign home owners and members of the Spanish government are even proposing similar measures at a national level. Though, it should be said, no policy has been decided on yet, and any move such as a ban (in whatever form, on whatever type of property) or even a limit would likely face fierce opposition from the main opposition parties, notably the centre-right Partido Popular (PP).

Sumar, the far-left junior coalition partner in the Spanish government, has even gone as far as proposing a three year ban on the purchase of housing by investment funds and non-residents in Spain.

This was recently outlined in a (for now) non-legislative proposal that was presented to the Spanish Congress’ Housing Commission. It was roundly rejected with the vote of, among others, its coalition partner in government, the Socialists (PSOE). That’s not to say the PSOE is totally against the idea, however.

Socialist Minister for Housing Isabel María Pérez said of the plans: “We agree on the philosophy of the proposal, but with nuances,” she said. “We have submitted an amendment but we think it will not be accepted, so we will not be able to support this bill,” she added.

So, from that we can take that the junior partner in the Spanish government wants to ban non-residents and investment funds from buying property in Spain, and the senior partner (Prime Minister Pedro Sánchez’s party, no less) supports the principle but not the practicalities.

READ ALSO: Spain’s new housing minister vows to protect second homeowners

The argument against

Clearly, non-resident foreigners buying up property in Spain, particularly in its space starved archipelagos, contributes to price inflation, saturates the market, and plays a role in pricing locals out of their own neighbourhoods.

However, it’s not that simple. Clearly, there is a difference between a non-resident foreigner buying a holiday home (perhaps to rent out as tourist accommodation for half the year) and a resident foreigner buying property to live in.

READ ALSO: How important are foreign second homeowners to Spain?

This difference has, for now, been reflected in proposed limits at both the regional and national level, rather than outright bans.

However, foreign home owners in Spain also make a huge contribution to the Spanish economy. In 2022 foreigners with a second home in Spain contributed €6.35 billion to Spanish GDP and generated more than 105,000 jobs in the tourism sector, according to the study “The economic impact of residential tourism in Spain” done for the Spanish Association of Developers and Builders (APCE) by PricewaterhouseCoopers (PwC).

The financial contribution made by these second-home owners in Spain is clearly significant. In fact, experts point out that the money brought into the Spanish coffers by foreign homeowners even outstrips some major industries.

“The contribution of residential tourism to GDP is triple that of the textile industry, double that of the timber industry and the same as the manufacture of pharmaceutical products in Spain,” Anna Merino, director of the Economics team at PwC, said when presenting the study. Every euro spent by ‘residential tourists’ adds €2.34 to Spanish GDP. On top of this direct contribution to the Spanish economy, the surrounding economic activity associated with the spending generated 105,600 full-time jobs in 2022.

So, there’s clearly an economic argument against banning foreign property purchases completely.

In the case of the Balearic Islands specifically, the proposals have met some opposition. The Balearics, which generates 35 percent of its GDP from tourism, according to figures from Caixa Bank, has long been a holiday or second-home hub for wealthy foreigners.

On this point, right-wing Popular Party member Sebastià Sagreras suggested in the regional parliament back in 2022 that conflating the foreign-buyer property market with local shortages is unhelpful, adding that the properties bought by foreigners, often worth more than a million euros, “do not compete” with those that cost €200,000 or €250,000 and are largely bought or rented by national residents.

Is it even legally possible?

Denmark, Malta and the Aland Islands in Finland all have restrictions on how non-resident foreigners can buy properties in their territories. However, they introduced these before entering the EU and these limits were factored in and accepted by Brussels. For Spain to do this, it would be much more difficult.

For local authorities in both the Balearic and the Canary Islands it could prove difficult to go against the EU’s legal principles of the free movement of people and capital, experts say.

This means that other potential solutions may be needed. Though there doesn’t seem to be a national level ban on foreigners from buying properties in Spain anytime soon, several regions have been attempting to do it for a couple of years, at least for non-residents, and even the national government is beginning to try and do something about it.

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