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Spain will approve mortgage aid for more than a million homes

FILE PHOTO.  Young people walk past a real estate agency in Guernica, Basque Country, Spain.  January 18, 2022. REUTERS/Vincent West
FILE PHOTO. Young people walk past a real estate agency in Guernica, Basque Country, Spain. January 18, 2022. REUTERS/Vincent West

By Jesus Aguado

MADRID, Nov 22 (Reuters) – The Spanish government and banks have reached an agreement in principle on mortgage relief measures, such as extending loan installments for more than a million vulnerable households and aid for middle-class families, the Ministry of Economic Affairs said on Monday.

The new measures are expected to be approved at a meeting of the Council of Ministers on Tuesday, pending final negotiations with banking associations, the ministry said.

The Ministry of Economic Affairs did not provide details on the potential cost to banks and the extent to which banks may have to book more provisions in the future remains unclear.

However, non-performing loans by Spanish credit institutions stood at an almost historic low of 3.86% in August, well below the historic maximum of 13.6% in December 2013.

In Spain, around three quarters of the population are homeowners and the majority opt for variable rate mortgages, which are more exposed to the acceleration of interest rates.

The planned measures are part of a broader support package to help ease cost-of-living pressures, including lower fuel costs and extraordinary tax proposals. Other countries, such as Hungary, Portugal, Poland and Greece, have approved different forms of mortgage aid.

In Spain, banks will offer mortgage support to vulnerable families through a modified code of good practice for the entire sector. The income threshold has been set at €25,200 per year ($25,815).

Vulnerable households will be able to restructure their mortgages at a lower interest rate during a five-year grace period, already set out in the original 2012 industry-wide code of practice, which is voluntary but becomes mandatory once that banks adhere to it.

Waiting periods allow borrowers to delay loan principal payments without being charged late fees and avoid loan default or cancellation.

The debt cancellation period has been extended by two years and includes the possibility of a second restructuring, if necessary, the ministry said.

Vulnerable families that allocate more than 50% of their monthly income to pay their mortgage, but who do not meet the condition established in the previous code of a 50% increase in their mortgage payments, may benefit from a grace period of two years. .

The Government will also apply a new code of good practices for middle-class families at risk of vulnerability, setting the income threshold at less than 29,400 euros.

In these cases, financial institutions must offer the possibility of freezing payments for 12 months, a lower interest rate on the deferred capital and an extension of the loan if the mortgage burden represents more than 30% of their income and the cost has increased by at least 20%.

The measures will also make it less costly for families to switch from variable-rate to fixed-rate mortgage contracts.

Mortgage aid is expected to come into effect next year.

(1 US dollar = 0.9762 euros)

(Reporting by Jesús Aguado; Editing in Spanish by Benjamín Mejías Valencia)

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