With historically low interest rates set with the Euribor in negative territory the number of fixed interest rates loans has greatly increased in Spain.
One of the most important measures of the new mortgage law in Spain is the commitment to fixed mortgages. As explained by the Ministry of Economy, among the main changes included in the Real Estate Credit Bill, which was approved by the Government on November 3 and will now be debated in Parliament for final approval, is the ability to convert variable mortgages into fixed mortgages.
Under the new law this possibility will not only be available to those who sign a mortgage loan after the bill becomes law, but it is one of the few laws that will be retroactive allowing current mortgages to also benefit from it.
“We are in a time of negative interest rates, but it is something exceptional. The rates will rise again and those who sign a variable rate mortgage do not have the same long-term certainty as those who sign a fixed mortgage. In addition, we think that the measures will increase the mortgage competition between the banks, which also benefits the consumer “, explains the Ministry captained by Luis de Guindos.
Current mortgage owners will be able to change their mortgage at a very reduced cost.
Whether the change is made with the same bank or with a different one, the client will only pay a commission if the change occurs during the first three years of the life of the loan. In that case, you pay a penalty of 0.25% of the capital that is amortized early. Once this period has passed, the client will not have to pay any kind of commission. In addition, there will be a subsidy for the expenses of notary and registry to lower the expense.
The latest data from the INE (referring to August) show that 40.4% of the loans for the purchase of housing that were formalized in that month were linked to the fixed rate, the historical maximum to date. And the forecast is that they continue to rise during the coming months.
“The fixed rate will be perceived as an alternative with more attractiveness than in recent years, once the rise in interest rates by the European Central Bank (ECB) approaches when economic growth gains strength in the eurozone and expectations of inflation begin to increase. As a result, the evolution of interest rates may lead to the signing of a greater number of mortgages at fixed rates, while the bill may encourage the change to a fixed rate by eliminating the commission after the third year. However, it would be expected that this transition would not be very fast, since we estimate that the 12-month Euribor will remain in negative territory for a good part of 2018, “says the entity.
The good news is that there are currently very competitive offers in both cases. In the idealista mortgage comparison, for example, we found variable rate loans from Euribor + 0.75% and fixed from 1.65% and 2.1% for a longer term (30 years). These are conditions slightly more advantageous than those registered just two years ago, when 30-year fixed mortgages stood at around 2.45%. The variables, for their part, were around 1% in the summer of 2016. In fact, the average interest rate on mortgages remains in the zone of historical lows.
This new law in the works shows a commitment by Spain to having a more competitive real estate market. Historically Spain has been a country of variable interest rates, which is great for the banks but puts all the risks on the home buyers and investors. With the new law favoring fixed rates Spain could compete with countries like France in terms of improved mortgage conditions. This is a good move on the part of the Spanish government and great for Spanish investors and home buyers.