Rise in Interest Rates Prompts Increase in Mortgage Loan Cancellations and Decrease in Savings in Extremadura

Despite the fact that January offered the best start to the year in the autonomous community since 2011 as far as mortgage firms are concerned, the following three months have been linking year-on-year declines. The last of them in April, which was 34%, which has led to a decrease of close to 11% in the accumulated for this four-month period compared to the same period in 2022. On the contrary, registered canceled mortgages grew by the same percentage between January and April, far exceeding the constitution of new housing loans (2,818 compared to 2,268, respectively).

With many of these cancellations what is intended is flee from the extra cost that the rise in the Euribor entails. For those who have savings, it is more profitable to settle the mortgage debt, to which the banks have already transferred the increase in rates, than not to keep money in the bank that is being remunerated poorly. “The remuneration of financial institutions has been zero until almost three months ago, when interest rates have been rising for a year,” sums up Mercedes Vaquera, a doctor in Economic and Business Sciences from the UEx and president of the Economic and Social Council of Extremadura. “It is logical,” he adds, that “families who can” want not to pay more and more interest “for a loan, be it a mortgage or of any kind”, as opposed to the other alternative, which is to have funds in the bank that “They produce practically nothing.”

The speed with which the rise in interest rates has had an impact on mortgage costs contrasts with the delay of financial institutions in applying this same increase in the remuneration of deposits. Recently, the president of the National Commission for Markets and Competition (CNMC), Cani Fernández, asked the political parties, within the framework of the electoral pre-campaign, to implement a package of tools that allow this body to act in cases of possible tacit collusion, which is what may be happening, he argued, with the payment of bank deposits by several Spanish banks. «If there is no collusive contact or agreements between banking entities, the Competition cannot act. We do not have the tool (…) it is a hole in our system », she reasoned.

Along the same lines, the First Vice President and Minister of Economic Affairs and Digital Transformation, Nadia Calviño, announced this past Thursday that she has commissioned the CNMC, together with the Bank of Spain, to identify if there are possible factors “linked to the structure and functioning of the market that would be affecting the incentives of the entities” to remunerate deposits to retail clients. After holding a meeting with the banking employers’ associations, the Bank of Spain, the consumer associations and the platforms for the elderly, he once again insisted that the banks must transfer the rise in rates not only to assets, but also to liabilities. Likewise, he explained that options will be analyzed to create a comparator that can provide “transparent” information to citizens about the different investment and savings instruments, as well as the remuneration for each of them.

Banks, for their part, have been arguing that, with the levels of liquidity that still exist in the market, they do not need to pay more to attract deposits.

In the current situation, “what people who have money in a deposit and a mortgage do, and what any adviser would tell them to do, is pay off”, because the interest to be paid on the loan “will always be greater” than the received for a term imposition, also points out Javier Rubio, president of the Union of Consumers of Extremadura (UCEX), who recalls another additional factor that is driving the cancellation of mortgages: from the end of last year and until December 31, 2023, The Government has eliminated the commission that banks can charge for paying off a variable mortgage early.

The rise in the Euribor has completely disrupted the market share between variable and fixed-rate mortgages. Traditionally, the latter have had much less weight, especially in the region, where in recent quarters they have come to account for almost two thirds of new loans.

Precisely, the conversion of variable credits into fixed ones is the other option that Rubio continues to recommend, and for which the commission to be paid has also been temporarily suppressed. Even if you have to “assume the costs of making another renovation later, you will be, at least, two or three years saving you one-odd percent, which is not nonsense,” he argues.

For now, with the Euribor hovering around 4% in the monthly rate, its highest level in fifteen years, last Tuesday the president of the European Central Bank (ECB), Christine Lagarde, already confirmed that there will be a new rise in interest rates in July. “It is unlikely that the central bank will be able to state with full confidence that interest rates have peaked in the near future,” she said.

According to UCEX calculations, the installment of a variable mortgage of 150,000 euros at 25 years, subscribed to the Euribor plus point and a half, it has gone from assuming 530 euros per month at the end of the first quarter of last year to more than 870 now.

The savings of Extremadura in banks falls by 600 million, a record decrease

The savings that Extremadura families and companies maintain in banks fell by almost six hundred million euros in the first three months of this year compared to the same period of the previous year. This decrease represents the largest that has been registered to date in a single quarter in the entire series of data from the Bank of Spain, which begins in September 1986. To date there had only been another precedent of a collapse of more than five hundred million euros in the deposits of Extremadurans in financial institutions, and it was during the third quarter 2011, in the midst of a recession in the Spanish economy.

The obstacles to spending after the declaration of the state of alarm due to the covid, together with the shielding of workers’ income, through the erte, and aid to companies and the self-employed, They made bank deposits fatten to unprecedented figures with the pandemic. Between March and June 2020, coinciding with the confinement, the piggy bank of the people of Extremadura grew by approximately 1,100 million euros. And the upward trend continued for most of the quarters that followed.

Several factors are contributing to the change in trend now. On the one hand, the hole that inflation is making in the pockets of families: “Savings are being used for consumption, they are being used for daily spending,” says Mercedes Vaquera, president of the Economic and Social Council from Extremadura. But in addition, the low profitability that financial institutions are offering for this type of product, the most common destination for Extremaduran savings, is causing them to look for other investment vehicles that guarantee better returns. The acquisition by Spanish families of treasury bills, for example, has set highs in the series and the purchase of homes as an investment has also increased considerably. Early repayment of mortgage loans to avoid rising interest rates has also helped to reduce the volume deposited in banks.

On the other hand, the bank credit of households and companies from Extremadura linked between January and March its third consecutive quarter downward, and decreased by 69 million euros, to 15,145.