The rise in interest rates can become a double-edged sword for banks. The positive effect that it will have on the interest margin is undeniable thanks to the increase in the cost of credit linked to the rise in the Euribor, but in the medium term it will force the sector to rethink its commercial strategy because despite the dynamism in the granting of new mortgages, the total balance credit is falling. The explanation is that those who are able are amortizing the outstanding mortgage balances: it is one of the best tools to save interest and could slow down the demand for mortgages over the coming months.
This trend, which has begun to take place since the summer, coincides with the rise in Bank interest rates and the fall in credit balances. The pandemic helped them increase their exposure to companies, but if the mortgage appetite declines, Spanish banks, which have traditionally been highly exposed to this segment, would lose one of their most attractive lines, because they are long-term loans, considered spleen risk. -Medium (mortgage loan delinquency is usually lower than other modalities) and that normally requires a high level of customer loyalty.
In fact, its roadmap includes continuing to bet on mortgage credit. Mortgages, in addition to the aforementioned advantages, continue to be the star product of banks to attract new clients, “so they will do everything possible so that citizens have access to them,” financial sources explain. Of course, depending on how the market moves, your offers will improve, remain the same or worsen. The more demand there is, the more likely it will be that banks will compete with each other to be the most mortgagers, at a time when the Euribor could reach 3.75% in the coming months. The commercial strategy, therefore, will be essential.
In this sense, it must not be forgotten that the bank promoted the granting of mortgage credit during 2021 and 2022. First, and after the pandemic, they accelerated fixed-rate mortgages, with interest rates that fell below 1%, while with the rise in the Euribor they made variable rate spreads cheaper. An alternative could be the granting of credit to companies, which has experienced a notarial increase in the second half of the year, as also included in the statistics of the Bank of Spain. Here, the commercial challenge will be to increase it to compensate for a decrease in mortgage loans, but at a time of economic uncertainty and high inflation.
Decrease in outstanding balance
According to data from the Bank of Spain, the outstanding balance of credits for the granting of mortgages marked maximums in the year in July 2022, standing at 516,242 million euros. And from then on, coinciding with the fact that the ECB raised interest rates by half a point, it has been falling. And especially when Euribor took the first big leap.
This means that from July to August, the outstanding mortgage balance has been reduced by just over 1,000 million euros. From there, the decreases have moved between just over 800 million and 500 million. The final balance up to November (latest data published) shows a drop of 3,000 million euros, returning to 2018 levels. This is not the first time that households have behaved like this. In 2011, once the housing bubble burst, families began a process of cleaning up their accounts by reducing their debts. This meant that, in barely a decade, the outstanding balance of mortgage loans went from just over 650,000 million euros to 511,000 million euros at the end of December, which represents a decrease of almost 140,000 million.
And everything indicates that this pattern can be replicated in 2023, since we must not forget that family money in sight accounts and deposits increased by almost 2,000 million to exceed 927,000 million euros in November. And it is that now with high levels, and without the remuneration of the deposits ending up arriving, the most profitable operation would be to repay the mortgage and save interest of 0.70%).
Last cartridge to grant mortgages
It can be argued that the tightening of credit conditions, due to the rise in the Euribor, has not yet affected the volumes of credit granting, for the moment. Although it is also true that you have to look at it with perspective, since after the stoppage caused by the pandemic, in 2021 and 2022 operations have been resumed. In 2021 it closed with a volume of just over 59,000 million euros. In November of this year, this amount has already been matched, but between September and October the granting of credit fell by 1%, which could be an indication of a certain moderation.
If we go back in time, in the years of financial crisis, the importation of new operations also gradually decreased. Specifically, from 2011 to 2013, when a minimum in aggregate terms of 21,000 million euros was reached. At that time, despite the fact that interest rates and the Euribor were at relatively low levels, the banks consented to the tap of closed credit.
The large financial institutions will soon give clues about their movements, since they will start their earnings season. This Thursday opens the Bankinter ban and will be followed by Unicaja, on the 31st, BBVA, on February 1, Banco Santander (February 2 and Caixabank, on February 3).