Mortgages with a stable present and a future of improvements

  • Loan rates remain at a minimum, although in the future they will tend to rise when the ECB decides to change its monetary policy.
  • The new mortgage law, which will take effect next year, will further reduce costs: it will not be mandatory to contract other products.
  • Moody’s does not rule out that the market becomes more restrictive in the granting of financing.
  • The entities renew promotions to release their housing portfolio.
  • Decalogue of tips to buy, sell and rent a house.
  • View and download in PDF the complete edition of ‘MiBolsillo’ for October.

Hipotecas

The mortgage landscape has hardly changed in recent years. Bank offers remain at historically low levels, despite any changes that may have been made.

The reason is not other than the interest rates in Europe remain at 0% and that the 12-month Euribor, the most used in the contracting of housing loans, continues to record negative rates month after month; for example, in September it was -0.168% when in 2008 it exceeded 4%.

With some types still competitive for the client, what needs to be fixed from now on is the conditions. Juan Villén, from the Idealista real estate portal, explains that in general terms, the banks’ strategy focuses at this moment on continuing with the stable rates and on having a predisposition to finance a greater part of the purchase of the property (an average of 65% in the first quarter of 2017, maximum since 2004).

But there are also negative aspects. In some cases, opening commissions are being re-applied (for formalizing the contract), and in variable mortgages sometimes higher interest rates are being imposed for the first two years.

New mortgage law

New mortgage law

However, this situation will change from next year, when the new mortgage law is expected to come into force, which aims, among other things, to maximize transparency in this type of loans and to reduce expenses for the client.

In addition, from then on it will not be obligatory to contract other products before the signature of the credit, as it can be the home insurance, something very usual at present, and penalties will be annulled as the early amortization.

In addition, banks will have a harder time carrying out an eviction. From this same year, the large entities are assuming part of the costs of formalizing the contract after a ruling of the Supreme Court. Also, some experts have warned about the possible harmful effects that this mortgage law could have.

Experts recommend that the quota does not exceed 40% of revenues

The rating agency Moody’s does not rule out that the market becomes more restrictive in the granting of financing. It also points to the possibility of a worsening of the conditions if the entities see limited their capacity to generate profits through the sale of this product.

We must also take into account that the future of mortgages suggests that interest rates will tend to rise, just when the ECB decides to change its monetary policy.

In any case, and regardless of the moment, the purchase of a home and the signing of a mortgage is one of the most important decisions of our life, since a good part of our income will be used to pay for it. Most experts recommend that the periodic fee does not exceed 40% of the net income of the loan holder. Therefore, it is best to reflect on it and compare different options. In the month of July, the latest data available from the INE, the average amount of credits granted was 119,600 euros.

What should you look for to choose the most appropriate credit?

What should you look for to choose the most appropriate credit?

Engage the minimum
The Spanish Mortgage Association (AHE) advises that the least possible loan volume be requested so that the costs are not high. “Do not become unnecessarily indebted,” they say. It must be taken into account that the amount destined to the payment of the mortgage must be added that of other debts if any.

Combining term and costs
You have to find the most appropriate combination between the repayment term and the interest rates that apply to the loan, says the AHE- GADCapital.com. “Extending time more than unnecessary means paying interest for a longer time,” experts say.

You have to calculate the debt capacity in a scenario of rising rates.

Select the types well
The types can be fixed, variable or mixed. In the first ones, you will always pay the same fee, even if the scenario changes. In the rest “we must calculate the capacity of indebtedness in a scenario of rising rates”.

Early amortization
It is something you can do at any time, but you must know if the entity will charge you some type of commission to carry it out.

Late payment
It is convenient to know what kind of solutions the bank gives to those who have temporary difficulties to formalize the corresponding payment.

Find out everything
All information is small. Before signing the contract there should be no doubt. Read the documents carefully, and if necessary, go to an advisor.