More than a million families in Spain will see their mortgage burden eased

The Council of Ministers of the Government of Spain approves this Tuesday a package of measures Which will allow alleviate the financial situation of vulnerable families or families at risk of vulnerability in the Spanish State due to the rise in interest rates. As reported by the Spanish Executive, the objective is that the set of measures, which lightens the mortgage burden to more than a million homes preserving financial stability, be available from next January 1, 2023.

In this context, as reported by the Government of Spain, the expansion of the catalog of measures that households can access will allow them, on the one hand, “to have more options to reduce their mortgage burden effectively”, and, furthermore, “to have more certainty in their level of spending in the medium and long term, being able to choose the measure that best suits their needs and financial situation”.

The Executive led by Pedro Sánchez specifies that, currently, there are in the Spanish State 3.7 million mortgages referenced to Euribor: “Thanks to the income protection measures and the drop in the credit stock,” says the source, “households have a healthier financial position, with more savings and less indebtedness than in the past. To this we must add that three out of four mortgages are currently granted at a fixed rate, that the average residual term has dropped to 10 years in 2021, and that the percentage of households that dedicate more than 40% of their disposable income to paying the mortgage has fallen substantially in recent years,” he points out.

In this line, the approved measures act in three way: firstly, “improving the treatment of vulnerable families“; secondly, “opening a new temporary framework of action for families at risk of vulnerability due to the rise in interest rates“; and, thirdly, “taking improvements to facilitate the early amortization of loans and the conversion of fixed-rate mortgages“.

Improvements to the Code of Good Practices approved in 2012

In this way, the Government of Spain explains that the measures include improvements to the Code of Good Practices for vulnerable mortgage debtors, which has been approved since 2012, “in order to adapt it to the current situation”; vulnerable debtors “will have the possibility of restructuring the mortgage loan with a lower interest rate during the five-year principal grace period (Euribor – 0.1%, compared to the current Euribor + 0.25%)”. Likewise, the term to request the dation in payment of the house is extended to two years, and the possibility of a second restructuring is contemplated, if necessary.

In addition, “with the aim of expanding the scope of action”, households with an income of less than 25,200 euros a year (three times the IPREM, which is the Public Indicator of Multiple Effects Income, an index used in the Spanish State as a reference for the granting of aid, subsidies or unemployment benefits) “who dedicate more than 50% of their monthly income to paying the mortgage, but do not meet the current criteria of an increase of 50% of the mortgage effort , can take advantage of the Code with a grace period of two years, a lower interest rate during the grace period and an extension of the term of up to seven years”. The Spanish Executive points out that it is a measure “necessary for those families that, as a consequence of the rise in interest rates, reach excessive levels of mortgage effort that force them to reduce basic expenses and jeopardize the payment of the mortgage”; These homes will thus be able to receive adequate treatment.

The Government of Spain explains that, with these measures, a family with a standard mortgage of 120,000 euros and a monthly installment of 524 euros after the interest rate review “will see its installment reduced during the five-year grace period by more than 50%, up to 246 euros”.

New Code of Good Practices

In addition, the series of measures proposes a new Code of Good Practices, “to alleviate Middle class debtors at risk of vulnerability due to the increase in the mortgage payment“, making it easier for families to adapt more gradually to the new interest rate environment. These are measures that households “with an income of less than three and a half times the IPREM, 29,400 euros per year, with mortgages subscribed up to December 31, 2022, with a mortgage charge of more than 30% of your income and that has risen by at least 20%: “For all these cases, financial institutions must offer the possibility of freezing the installment for twelve months, a lower interest rate on the deferred principal and an extension of the loan term of up to seven years”, specifies the Government of Spain.

At the same time, according to the same source, “expenses and commissions will be further reduced to facilitate the change from a variable rate to a fixed rate, and commissions for early repayment and change of mortgage from a variable rate to a fixed rate will be eliminated throughout 2023.” permanent”. Measures will be included to promote financial education, and monitoring of the application of both codes will be strengthened.

The two Codes of Good Practices will be voluntarily adhered to by financial institutions, and mandatory once signed. Banking entities must guarantee the protection of this catalog of measures, in case of transfer of the credit to a third party.