Fixed or variable rate mortgages



We live a historical moment of very low or negative interest rates, something never seen in the Spanish mortgage market. The winds that arrive from the USA is that they return the highest types. Let’s look at some questions about the effect of interest rates on mortgages in Spain.

How would a rise in interest rates affect housing investment?

How would a rise in interest rates affect housing investment?

The interest rate increases increase the monthly installments of the mortgages at a variable rate, at the time of the periodic reviews, and of the new fixed rate mortgages that reflect the increase. That is to say, in mortgages at a variable rate, there is a six-month and one-year offset in the increase in installments, and does not affect the already signed fixed mortgages, but the newly created ones.

Taking into account that the effect is not immediate, a rise in interest will increase to the installments that are paid for a mortgage, which added to the wage devaluation already experienced by the mortgaged potentials since mortgages, as a general rule, do not have terms Over 30 years, it will influence the maximum price that an average customer can pay for a house. In other words, higher interest rates end up affecting the price of houses, if wages do not increase at a proportional rate.

What percentage of Spanish savings is invested in housing?

What percentage of Spanish savings is invested in housing?

Approximately 27% of Spanish investments are in financial assets, while the remaining 73% is in non-financial assets, primarily in brick. This collides, with data from Inverco to 2012, with 70% of investments in US financial assets, a country in which only 30% of investments are in homes and non-financial assets.

What percentage of the new mortgages corresponds to the fixed rate and the variable?

If we take the latest data published by the INE, in December 2016, 68.4% of mortgages at a variable rate and 31.6% at a fixed rate were signed, a phenomenon that is unparalleled in recent decades. According to the trend, it is possible that the percentage of fixed mortgages eventually exceeds that of variables.

To what extent does the rise in interest rates affect the type of mortgages contracted?

To what extent does the rise in interest rates affect the type of mortgages contracted?

An increase in interest rates, if the bank considers that it will be a scenario sustained over time, will cause them to offer only variable mortgages again, so that the risk of rate hikes is submerged by their client.
As long as we see that banks actively offer fixed rates, their analysis departments consider the most likely scenario to be type stagnation, not increases.

For those already mortgaged at a fixed rate, that there is a scenario of interest increases “benefits” them from the point of view that they will pay stable rates for decades and, on the other hand, those mortgaged at a variable rate will see their quotas grow after each review. Or the opposite if the types remain low for a long time.

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