Rebeca and Iñigo (like the other couples who appear in this report, they prefer not to give their surnames) bought their house three months ago. They are now “half” owners with the bank that granted them a 30-year mixed mortgage: a fixed interest rate of 2.2% for the first 10 years and Euribor plus 0.9 points for the following 20. They have taken out life insurance and home insurance. Their loan has no cancellation fees, neither partial nor total. Before finally deciding on this mortgage, they looked around on the Internet for everything and more; so much so that at some point they felt somewhat confused by the number of, as they say, “variables” to take into account. They decided, because a friend recommended it, to use a mortgage broker to try to simplify the selection process and “not send the same paperwork to 10 banks.” For 1,800 euros, the financial intermediary presented them with three specific offers adapted to their needs. And they chose theirs: for them, the most convenient. Celia and Guillermo also own an apartment, also, in part, shared with their bank. They define themselves as “low risk”, so the mortgage they have signed is a fixed rate, 2.5% for 15 years. They have also taken out life insurance, payment insurance and home insurance. Their credit does have a cancellation fee in the event that they pay off more than 25% of their outstanding balance early. Their search for a mortgage also began on the Internet. “It is true that all the entities offer their general conditions; that they have simulators that calculate how much you will pay per month, but everything else: from the different commissions, the various insurance policies and their impact on your payment, the appraisal, the management… is poorly explained and confuses you.” Their solution was to go directly to the bank where their paychecks were domiciled and ask for an offer, which finally suited them. Teresa and Monica will sign the purchase of their house on the outskirts of Madrid this week. In the same notarial act, they will also become mortgage holders for, theoretically, the next 25 years. The process has been complicated for them – more than four months – because they need to finance 90% of the appraisal price of their home. They have turned to the My First Home programme of the Community of Madrid. Finally, they have opted, as opposed to the general public, for a variable rate loan at Euribor plus 0.7 points (because they are committed to the direct deposit of their salaries, the use of credit cards, the direct deposit of the usual bills, the usual home and life insurance…) which, in the first 12 months, is, however, set at 1.7%. They cross their fingers that the interest rates really start to fall. As they all recognise, the current offer of mortgage loans is very wide and varied and somewhat more competitive than just a few months ago. Fixed rates in many cases below 2.5%; variable rates with initial fixed rates at three years below 2%; at five years, which do not reach 2.5% or even at 10 years, close to these levels. At variable rate exclusively, with Euribor with spreads from 0.4% to 1%. The problem is that all the advertised offers are “generalist”, they explain. They are right: in each of the mortgages available to consumers there is quite a bit of small print; conditions that must be met to improve the interest rates (from subscribing to the relevant insurance, making contributions to investment funds or even financing sustainable housing…) to requirements of terms, payrolls, receipts, commissions… Hence it is not possible to give the title of “best mortgage” to any of those offered; each of them will be better or worse depending on who needs it. These three pairs, furthermore, represent fairly faithfully what is happening in the mortgage market in recent months. According to the latest official data from the Bank of Spain as of April, and according to the Spanish Mortgage Association, the number of fixed-rate and mixed-rate loans “maintains a growing increase, reaching almost 88% of the new credit flow”. In its opinion, it is not only a matter of the fact that the offers from financial institutions have been somewhat more competitive for a few months, but that “this increase responds to the greater stability offered by both credit segments in the medium or long term, both to consumers, who benefit from more accurate financial planning during, at least, the first years of the loan’s life, and to the institutions in a context of expectations of a decrease in interest rates”. It is not only a question of tranquility, but also of “prices”. The current situation of interest rates is somewhat atypical with respect to what financial orthodoxy indicates. According to data from the Bank of Spain, variable interest rate loans for home purchases are, on average, more expensive (4.41%) than mixed interest rate loans (3.98%, for periods between 1 and 10 years) and fixed interest rate loans (2.99%).
House prices
Data from Gibobs Allbanks, a financial intermediation platform in the real estate sector, abound in this trend: over the last three months, from April to June, 41% of the mortgages signed were fixed rate, while 40% were mixed rate, and 19% were variable rate, demonstrating, in its opinion, «that the announcement of the interest rate cuts by the ECB has helped to reactivate this type of mortgage.» From this platform, however, they also put their finger on the sore spot. «The drop in interest rates has boosted the reactivation of the market, but it has also caused the price of housing in Spain to rise. In fact, if you wait for mortgages to go down, you might save a marginal amount and probably end up losing money due to the increase in the price of housing, so it is important to get good advice and take advantage of the conditions that banks are currently offering us,” says Jorge González-Iglesias Baeza, CEO of Gibobs.com. According to data recently released by the General Council of Notaries, the average price per square metre in Spain stood at 1,681 euros in May, registering an increase of 1.3% year-on-year. The prices of flats rose by 3.4% compared to the same month of the previous year, reaching 1,890 euros per square metre, while the price of chalets averaged 1,300 euros, registering a decrease of 3.3%. The real estate portal Idealista offers, with the data of the houses they process, a sample of the prices by autonomous communities. The data is striking: the Canary Islands are in the lead, with prices per square metre that have risen by more than 15% year-on-year. It is followed by Madrid, with 12%; the Balearic Islands, with 10.7% and Valencia, with 10.3%. Follow all the information on Economy and Business on Facebook and Twitter. Xor in our weekly newsletter