The Growing Trend of Early Mortgage Repayment in Spain

There is a growing trend among Spanish families to repay as much of their mortgages as possible early, especially those subject to variable interest rates. In the last year, 70,652 million euros of the principal of the outstanding mortgage debt with Spanish banks have been amortized, at a rate of 5,887 million euros per month. At present, for many families, given the aforementioned trend, reducing mortgages at variable interest rates, which have risen a lot in the last year due to the policy of the European Central Bank, is a better option than keeping the money in bank accounts , since they are remunerated with very little profitability, or have the savings invested in funds and financial assets subject to the high volatility of the stock markets.

The early amortization of variable mortgages is a good financial decision that, however, is only within the reach of families with medium and high incomes that have accumulated savings. On the other hand, families with low incomes and those with little saving capacity are trapped in the upward spiral of the Euribor, with increasingly higher mortgage payments and, therefore, with less income available for consumption or other expenses. This situation will continue until inflation begins to subside in the euro zone and the ECB stops raising interest rates and begins to gradually reduce them. That could happen between 2024 and 2025.

The significant increase in variable mortgage amortizations, according to the Bank of Spain, has been possible thanks to the substantial improvement, last year, in the household savings rate, which has recovered after the decline it recorded at the end of the pandemic. This greater saving, in turn, has been possible due to two factors: a lower level of consumption and, in parallel, a recovery in purchasing power thanks to the increase in wages and pensions, the improvement in employment and the decrease in inflation. Due to all this, the information for the fourth quarter of 2022, as verified by the Bank of Spain, shows an increase in gross wealth in real terms, after the falls in previous quarters.

Thanks mainly to the aforementioned early payment of variable-rate mortgages, the household debt to disposable income ratio has dropped notably and has reached the lowest levels since 2003. In general, Spanish families currently have a relatively healthy financial situation, except, as also verified by the Bank of Spain, those that maintain a high variable-rate mortgage debt, which find themselves with serious difficulties in reaching the end of the month and even at risk of insolvency. Banks, in this sense, should be more flexible, study each case and offer a greater margin of moratorium on payments, since –sooner or later– interest rates will fall again.

THE VANGUARD