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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.

Published: 22 November 2022 10:57 CET
Updated: 27 November 2022 08:45 CET
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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PROPERTY

Why Spain is looking to Vienna to fix its housing crisis

Spain is trailing behind the rest of the EU when it comes to social housing and has one of the lowest proportions of stock, so could replicating the Austrian capital's model be the solution?

Published: 26 April 2024 10:50 CEST
Why Spain is looking to Vienna to fix its housing crisis

According to figures from Spain’s Land and Housing Observatory, in 2020 just 2.5 percent of total constructions in Spain were for social housing, far lower than in countries such as Austria, where it was 24 percent, the Netherlands, with 30 percent, and Denmark at 20.9 percent. 

Spain is one of a small handful of EU countries that have surprisingly low social housing provisions. Spain ranks 18th in the EU overall and is joined at the bottom of the table by countries such as Romania (1.5 percent), Estonia (1.7 percent), Croatia (1.8 percent) and Portugal (2 percent).

Spain’s 2.5 percent figures are also much lower than the wider European average of 9.3 percent. In recent years, Spain has not even managed to complete 10,000 social housing units per year, compared to 60,000 a decade ago.

READ ALSO – EXPLAINED: How Spain plans to address its huge lack of social housing

Furthermore, public housing has become increasingly privatised in recent years, affecting most of the almost 2.5 million subsidised homes built since 1981, when the first plan was approved. In 2012, the construction of social housing plummeted and dropped from 50,000 homes annually to just 9,200 in 2022.

The Viennese model

For decades now, Vienna, the Austrian capital, has increased its stock of price-controlled social housing and has stood out for its housing policy.

Although there is social housing throughout the country, the majority of it is concentrated in the capital city. 

The Vienna City Council has become the biggest homeowner in Europe – around 60 percent of residents live in one of 220,000 properties subsidised by the public sector, and the city invests up to €600 million annually in affordable housing models.

By increasing social housing and limiting rent, the value of housing has also been limited and prices have been regulated. For example, in Vienna, rent is around €9 per m/2, according to the consulting firm Deloitte.

This figure is much lower than that of the rest of the European capitals, compared to London or Paris, for example, where the rental price per m/2 is around €30. In comparison, rent in Barcelona and Madrid is around €17 and €14 m/2 respectively.

The requirements to be able to access social housing in Vienna are also very broad. Basically, you need to be 17 years old or older, be registered Vienna and earn more than €43,000 net annually. Rent can also not represent more than 30 percent of your income.

READ ALSO: Spain needs to build 1.2 million affordable rental homes in a decade

How Spain is planning on replicating the Vienna model

Spain, like many EU countries, has begun to turn towards the Viennese model.

Madrid in particular hopes to increase the real estate stock by 70,000 homes in four years, of which up to 40,000 will be dedicated to social housing according to regional president Isabel Díaz Ayuso.

Like in Vienna, Madrid hopes to balance the real estate market naturally without limiting prices. For example, in Vienna where the private real estate stock has been regulated, 60 square meter homes can vary between €600 and €700 per month. This is almost impossible in Madrid and Barcelona, where a home with the same characteristics can exceed more than €1,000 per month.

The Spanish government recently approved a plan to allocate 50,000 ‘Sareb’ homes to bolster its dwindling social housing stock. La Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria or ‘Sareb’ was created eleven years ago to buy real estate assets from banks that went bankrupt during the 2008 financial crisis, and has been state-run since 2022.

Sánchez followed up on this 50,000 pledge by announcing the financing of a further 43,000 homes for social housing paid for with €4 billion of European funds.

“I want to announce that, in addition to the mobilisation of 50,000 Sareb homes, we are going to finance the development of another 43,000 new homes for social rent and rent at affordable prices,” the Prime Minister said.

He also criticised Spain’s “embarrassing” social housing stock compared to Europe, and reinforced his “commitment” to “move forward so that housing is a right and not a problem for the majority of citizens”. 

Having an extensive public housing stock allows prices to be lowered and ensures that there’s sufficient supply.

Christian Schantl, the head of the International Relations department of the public company Wiener Wohnen, the entity that manages public rentals in the city of Vienna, has advised Spain that to do this, they should not sell public housing under any circumstances.

In an interview with El País he said: “You cannot completely copy and paste the system, it would not work. One thing [the Spanish Government] should not do is sell its public housing. This is very important because many cities in Europe have made that mistake and are now facing serious problems. So that’s the first thing: never sell what you have. And then, there are some elements that are important to take into account, such as the financial situation, the necessary land, the legal framework and housing policies,” he continued.

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