MADRID (Reuters) – Spanish homeowners, fearing a return to the turmoil that nearly bankrupted their country a decade ago, are rushing to protect themselves from rising prices and runaway borrowing costs in making new mortgage deals that lock in repayment rates.
In a country where, according to Eurostat data, around three quarters of the population own their own homes, most used to choose variable rate mortgages and chose between competing offers from banks as the costs of Eurozone borrowing was bottoming out.
New demands rise as property prices soar, but three out of four are now fixed deals as war shakes confidence and the European Central Bank prepares to hike interest rates interest as markets crash.
They seek financial security above all else, said Ignasi Viladesau, chief investment officer of Spanish neobank MyInvestor, and similar changes are underway in Italy and, to a lesser extent, Germany.
“You know how much you earn in your job and how much you will pay, so you can plan your budget much more easily,” Viladesau said.
In March, 73% – or about 4.6 billion euros – of new mortgages were at fixed rates, compared to 56% a year ago, according to the Spanish National Institute of Statistics – even if mortgages at fixed rates bore at the time an average interest of 2.68% against 2.15% for variable transactions.
Of Spain’s total mortgage debt of almost half a trillion euros, more than 120 billion is linked to fixed rates.
House prices which rose 8.5% in the first three months of 2022 – the strongest since the third quarter of 2007 – add to the uncertainty.
“Everything is driven by risk aversion,” said real estate agent Pablo Rodriguez.
Eurozone interbank lending rate fixings jumped on Tuesday, reflecting a surge in bond yields and huge increases in market expectations for rates this week and illustrating why the shift in mortgage borrowing is not just a Spanish phenomenon.
In Italy, fixed-rate mortgages account for 85% of new home loans, up from less than 30% a decade ago, according to the central bank.
In Germany, conservative borrowers have long favored fixed repayments but are now locking them in longer – 14 years on average compared to 13.3 in 2021, according to German mortgage broker Interhyp.
“People increasingly want to get favorable interest rates for longer,” said Mirjam Mohr, Interhyp’s board member overseeing retail.
“Many of our customers are worried. They see the level of interest rates rising and feel some pressure to get favorable interest rates quickly.”
Interest in fixed rate deals has also increased in Portugal, although many are opting to stick with cheaper variable rates, a banking source said.
For Rafael Miralles Ponce, a partner at Spanish consumer group Adicae, now is not the time for borrowers to put their future “in the hands of a bank”.
“It’s like a football match,” he said. “The bank can score the first goal, but then there’s the whole game, and I win with a landslide victory.”
(Reporting by Jesús Aguado; additional reporting by Tom Sims and Francesco Canepa in Frankfurt, Valentina Za in Milan, Sergio Gonçalves in Lisbon and Lawerence White in London; editing by John O’Donnell and John Stonestreet)
Copyright 2022 Thomson Reuters.