Fear of rates and inflation drives home sales

The fear that interest rates will rise and the effects of inflation, which will erode the value of savings and will also likely increase the price of housing, is accelerating the purchase of flats and will sustain the growth of mortgages in the coming months, according to bank executives who participated in a debate on the future of the mortgage market organized by Fotocasa.

Fear of rates and inflation drives home sales

The fear that interest rates will rise and the effects of inflation, which will erode the value of savings and will also likely increase the price of housing, is accelerating the purchase of flats and will sustain the growth of mortgages in the coming months, according to bank executives who participated in a debate on the future of the mortgage market organized by Fotocasa.

Ramon Faura, director of private banking at CaixaBank, assured that beyond the uncertainty “people reflect and understand that this is a good time to buy a home: the economy is growing; employment is less and less temporary and inflation will increase the price of housing – the construction costs of new housing are already increasing – and will reduce the weight of debt in personal assets in the medium and long term”. Now, in addition, it is possible to take out mortgages at very moderate fixed rates.

Banking experts assured that in their opinion the rise in rates will have a minimal impact on the sale of homes, and therefore, on the granting of mortgages. Although rates returned to positive territory in April, for the first time since 2016, and the Euribor is at 0.24%, "they are expected to end the year at 0.4% and rise three or four times in 2023 until they reach 1.5%”, assured Ana Pitarch, head of private customers at BBVA. “Each 0.5% increase raises the average fee by 50 euros per month, which in the current circumstances means that it will rise less than inflation,” Faura stressed. At current CPI levels, moreover, "real interest rates will continue to be very negative," explained Faura.

Rocío Rodríguez, business development coordinator at Abanca, considered that there is no need to be "afraid that the rise in rates will have a great impact on the real estate market", because it is expected that they will continue "well below the levels that we had in Spain a few years ago”. In addition, she recalled, "the rental market, the alternative to buying, in many places is very stressed so that the mortgage is a better option."

The financial entities that participated in the debate assured that they maintain their offer of fixed-rate mortgages, due to their conviction that the rise in rates will be moderate. However, they recognized that the rates are higher than those of a few months ago and well above the variable rate. In March, with the Euribor still negative, 70% of all mortgages granted were at a fixed rate.

Cristina de Marcos, head of mortgages at ING, pointed out that they are committed to a mixed mortgage, with the first 10 years of fixed interest "to achieve stability of the installment in the first years and a more reasonable rate".

All entities ruled out that the rise in rates could lead to problems for the financial sector due to an increase in non-performing loans, which is now at a minimum. Pitarch assured that in BBVA the average rate of effort is 26% (mortgage holders allocate this percentage of their family income to the payment of the installment), a rate that the CaixaBank research service estimates at 33% for an average household, according to Faure. "In the worst of the scenarios that we handle, the effort rate would go to 39% of family income, which is still affordable," she said.


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