The decline in the number of mortgages constituted on homes in June has been attributed to a combination of factors whose impact is difficult to determine, such as initial signs of economic moderation and the effect of the new real estate credit law. However, such a sharp and intense drop, like the 14% monthly decrease, can only be due to an exceptional factor, such as the adaptation of various market operators to the new regulation’s entry into force. The future trend in demand for mortgage loans may indeed be influenced by economic developments.
The new Real Estate Credit Contracts Law is very demanding for operators, banks, and notaries, especially during the informational stage prior to signing the contract, in order to reinforce transparency and thus client security. The objective is for the client to fully understand the contract’s characteristics, which requires sufficient time to analyze it at the notary’s office chosen for the signing. Since its implementation, banks have consistently maintained their capacity to grant loans and the quality of client service, while also making a great effort to adapt their processes to the demands of the new regulation, thereby preserving the security and transparency that govern the Spanish mortgage market.
An example of banks’ willingness to maintain the flow of financing for families’ home purchases, their main asset decision, is that the balance of new mortgage credit operations amounted to 11.5 billion euros in the second quarter of the year, which is 900 million more than in the first three months. And under very favorable conditions. In June, the average interest rate on home loans was 2.57% (3% lower than a year ago) and the average term was 24 years. Clients opted more for variable interest rates, although the strong growth of fixed-rate mortgages continued. Banks offer clients a wide range of financing options transparently, with the client choosing the one that best suits their interests and future prospects. Fixed-rate mortgages can offer clients more security by knowing the cost of the loan in advance until its maturity. They are predominant in most European countries.
Signs of economic weakness observed in Europe may lead the European Central Bank to maintain expansive financial conditions longer than initially anticipated. However, the monetary authority itself reiterates that this is an exceptional situation responding to the exceptional nature of the economic scenario. Each bank markets its products and sets its pricing policy according to its own commercial strategy in an environment marked by high competition. The floor for interest rates on mortgage loans is set by the Real Estate Credit Law, which establishes that the remunerative interest in variable interest rate operations can never be negative. This clarifies something that is already inherent in the rationality and nature of loan contracts, since its counterpart is the payment of a compensatory interest rate that has been agreed upon.
The high dynamism of the housing market so far this year is not only due to reduced unemployment and very favorable financing conditions. It is primarily due to the deeply rooted culture of home ownership prevalent among Spanish families, which goes beyond a generational issue. It is essential to preserve the characteristics of the mortgage market that serves society so well, which necessarily requires clear and stable rules over time that offer security and trust.
José Luis Martínez Campuzano, spokesperson for the Spanish Banking Association
