Spain's government and banks agreed on Monday, November 21 on a new set of measures that will benefit low to mid-income mortgage customers from 2023.
According to the country's Ministry of Economic Affairs, more than one million mortgage holders will benefit from the move helping them to weather the financial storm and recent hike in interest rates.
Official data shows that the average mortgage repayment has increased by around 50% this year with the average mortgage holder with a loan of 150,000 euros paying 675 euros per month in October compared to the previous 448 euros being paid in the same month in 2022.
With three-quarters of all Spanish mortgages being of a variable rate, the recent rise in interest rates has hit the majority of mortgage customers hard, coupled with a sharp rise in inflation.
The government said the measures “will preserve financial stability” providing support for both low-income and middle-income mortgage customers in the face of sharp interest rate rises set by the European Central bank since August.
Modifications to the mortgage Code of Good Practices will provide financial support to homeowners with incomes of up to 25,200 euros per annum which will be increased from the previous 24,318 euros.
What are the new measures?
Those who will be eligible for extra support will:
Those who mortgage a new home will also be provided with support, however, it will be less favorable. These mortgage customers will be able to pay only the interest on their loans for up to two years, instead of five, and extend the repayment period by a maximum of seven years.
If the measures are still not sufficient for the holder to pay their mortgage or the bank refuses, families may receive a loan to help pay their mortgage to the bank.
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.
Previously, customers could only receive such support if their financial situation had been impacted over the past four years. This meant that many customers were not eligible for support as it had been due to a rise in interest rates rather than a change to their own financial situation.
How will repayments be affected?
The Ministry of Economic Affairs believes that those with a loan of €120,000 paying around €524 per month, will see their repayment lowered by more than 50% over the five-year period to around €246 per month.
What about middle-income earners?
The new Code of Good Practices will also protect those who earn up to €29,400 per year and those whose mortgage payments are more than 30% of their income.
However, both of these groups will need to prove that their mortgage burden has increased by more than 20%. Those who are eligible will have their mortgage repayments frozen for 12 months meaning that their repayment will remain the same over this period.
Bank commissions and fees will also be reduced to encourage customers to switch from a variable to a fixed-rate mortgage. Charges for early repayment and to switch loans will also be scrapped in 2023.
The Spanish Cabinet will have to approve the agreement on Tuesday, November 22, however, this is expected to be a formality.
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