The covid-19 has not made distinctions when it comes to spreading, but its brutal economic impact yes it has differentiated between poor and rich. This is shown by the evolution of mortgage credit during the pandemic, according to the latest financial stability report from the Bank of Spain. Households that paid a mortgage before the health crisis have debt-free in a generalized way since then, but to a greater extent in the municipalities with lower income levels. On the other hand, among those households without a prior mortgage, the increase in these credits has been more pronounced in the higher income areas.
It might be thought that increasing debt in the midst of a pandemic is a symptom of financial difficulties, but this is not the case. As a recent report from BBVA Researchthe strong increase in home sales in 2021 (38.4%), which has continued in the first months of this year, has been largely due to the fact that families now prefer larger residences and with spaces fresh airthe “growing attractiveness” of housing as an investment, and the use of accumulated savings during confinement. All this in a context of low interest rates and therefore “favorable conditions” to borrow. It follows that many households that have been able to afford it have bought better houses to live or obtain rental income, while those with lower purchasing power have focused on reduce your debt to deal with the economic blow of the pandemic.
municipal differences
The exhaustive analysis of the Bank of Spain supports it. Thus, Spanish families raised their debt mortgage (mainly for the purchase of homes, but also for other purposes such as the acquisition of other types of real estate) 0.17% between 2019 and 2021, up to 514,676 million. But with big differences. Excluding the smaller ones, in the 3,314 municipalities with lower income of the country (8,953 euros of annual average net income) the mortgage debt down 2.05%. It also fell 1.26% in the 3,066 towns with an average income of 10,809 euros, as well as 0.11% in 2,076 average income of 12,270 euros.
By contrast, in 1,454 municipalities with an average income of 13,951 euros the mortgage balance rose 0.6%. But those that contributed the most to global growth were the households of the 897 richest populations (18,462 euros of income, 106% more than those in the lowest bracket), as they increased their mortgage debt 3.65%. All of this has implications positive for banks and financial stability. “These developments would signal that the average portfolio quality mortgage of banking entities would have improved since the start of the pandemic”, highlights the Bank of Spain report.
So the percentage of distressed home loans stood together in the 8.58% at the end of last year (4.16% in delinquency and 4.42% in special surveillance due to high risk of default). However, the rate was noticeably superior in the three sections of municipalities of low rents who reduced their mortgage debt (12.32%, 10.08% and 8.61%) than in the two sections of high-income populations that increased their indebtedness (6.84% and 5.28%). To the extent that the latter raise their debt and the former lower it, the risk of loss to stop charging for entities is less.
Social problem
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The evolution of the mortgage balance, in any case, also confirms that there is a growing housing access problem in the country for years. This shows that the prices of homes have become more expensive 39.3% since 2015in front of 5.6% that have risen on average wages in that period, according to data from a report by the Green Building Council Spain (GBCe). The situation is logically worse for households with lower salaries and lower savings, as their behavior during the two main years of the pandemic demonstrates.
And it shows no signs of improving in the short term. BBVA Research forecasts that house prices they will rise 5% in 2022 and 5.8% in 2023 as a consequence of the recovery that has already been seen in demand and inflation. In his opinion, the rate hike of interest by the European Central Bank (ECB) “it will not have a great impact on the mortgage effort” what households should do. But yes, as long as they are able to overcome the “barrier to entry”, that is, having enough savings to pay around 20% of the value of the property. Something increasingly difficult for the lowest incomes.