Can mortgages be a problem for listed banks? The rise in the Euribor, which at some point this year could touch 3.75% (according to Funcas estimates), and a rise in inflation (despite the aggressive action of central banks) will make mortgage loans more expensive. The consequence of this will be lower disposable income for households, which could allocate 40% of their income to pay their mortgage loans, in breach of the Bank of Spain’s recommendations. Despite the fact that it may lead to an increase in delinquencies, everything indicates that defaults will be less widespread than in the previous real estate crisis and concentrated in certain areas.
The banking supervisor advises that the annual income used to purchase a home should not exceed 35% of income, a percentage that will be comfortably exceeded according to the calculations made by Deutsche Bank, due to the rise in the Euribor. “The median income ratio for households with mortgages could exceed 35% in 2023, and could likely approach 40% in 2024, which could become a significant problem, especially in geographies with higher stress levels. ”, they explain from the investment bank. However, it would not be strange if during premium hours and in large cities they exceed the 50% level at some point.
Still, experts believe affordability would still be reasonable, depending on the region even if the benchmark rose. It should not be forgotten that the current average in Spain is 30%, although there are regions, such as the Balearic Islands, where the effort reaches 60%, while in Madrid it is below 40%, according to data from the Association of Property Registrars. Catalonia and the Basque Country could register greater tension in the effort in the future.
Taking into account that 75% of mortgage loans in Spain are subject to the evolution of the index, the average in Spain would be 36% for a Euribor of 3% and would climb to 39% if the index continued to rise to situ in 4%. By region, it could be worrying in Madrid, with an increase of 7 basis points to 45%, while Catalonia and Andalusia would have more manageable levels, with 38% and 36% of income dedicated to mortgage payments.
Although in the case of Madrid it is particular, this increase would be offset by higher income. Where it would be worrying would be in the Balearic Islands, where the percentage of income used to pay the mortgage of the credits could be up to 80%. It should not be forgotten that the mortgaged debtors who reviewed their credits with the January data will see how the installments will increase on average by 280 euros for a 25-year mortgage of 150,000 euros (in January 2021, the Euribor closed at -0.477% ).
Problem for banks?
Even so, everything indicates that delinquency will be contained. 2008. Sources from the financial sector explain that the key continues to be the level of unemployment in Spain, which remains contained, being relatively low when compared to the previous crisis when delinquency skyrocketed. “The total impact would not be insignificant, but it should be mostly manageable,” they explain from Deutsche Bank.
However, different industry analysts insist that the rise in the Euribor favoring the appreciation of mortgage loans, whose positive impact will not only be seen in the evolution of the banks’ interest margin for this quarter of 2022, but will continue throughout throughout 2023. Regarding the provisions that the banks could carry out for these payments, it is estimated that they could represent 10% of the income from the interest margin, but spread over 3 years.
Although everything indicates that the impact will be limited, the exposure of each bank to mortgages will have to be taken into account. Among the banks listed on the selective, those that could suffer the greatest stress would be Unicaja Banco and Caixabank, whose total percentage of mortgage loans out of the total exceeds 50% and 40% respectively. Paradoxically, they could have greater protection for their mortgage portfolio if an economic deterioration occurs than those banks that are more exposed to SMEs and companies such as Banco Sabadell or Banco Santander. By region, Caixabank would be affected by the strong exposure to Madrid via Bankia absorption, or Unicaja Banco due to the effort it makes to gain market share in the capital. In Catalonia, Caixabank, Banco Sabadell and BBVA concentrate their presence.