He interest rate hike will raise the mortgage effort of families up to 40% of their average monthly income. The risk rating agency Fitch Ratings foresees that the variable rate mortgage installment reviews rapidly raise this average indicator of financial effort of Spanish families to pay for housing. The debt-to-income ratio of floating-rate loans will rise to 40% through the start of 2024, from the 30-35% range seen in 2022, according to Fitch Ratings.
These calculations assume nominal wage growth of 5%, a Euribor of 4% and a loan-to-home-value ratio of 60% (a percentage generally required by banks to grant mortgage loans).
Fitch indicates that the credit risk associated with these higher interest rates, which have quadrupled in just one year, is mitigated by the “long term” or margin of life of the mortgages in force, so the impact of the rate rise varies greatly depending on each indebted family. The effect of the rise in interest rates on customers and financial institutions is progressive, as it depends on the generally annual update that prevails in most Spanish mortgage loans: “Given that most variable-rate mortgages have annual coupon reset frequencies with no concentration risk in any given month, we believe the full impact of higher interest rates will take time to materialize across all portfolios,” Fitch explains.
The rating agency estimates that the house prices will remain almost stagnant and that demand will remain low, especially in the case of new housing. In this sense, it coincides with the majority of analyzes carried out by professionals in the real estate sector. Regarding the default rate (the non-performing loan ratio or NPL), it will be around 3% and 3.75% for this year and next. Regarding the risk of non-payment, Fitch acknowledges that at least half of those defaults will have consequences: “We estimate that at least half of the total recoveries of positions in difficulties are currently linked to friendly solutions,” explain the technicians from the risk assessment agency.
Regarding rent, Fitch estimates that households “will continue to suffer” despite government measures such as rent freezes. According to Fitch, the rental price per square meter has risen 60% since 2013.
Years of full salary
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According to the study ‘Relation of salaries and the purchase of housing in 2022’, based on the data of the average salaries of the job offers of the platform InfoJobs and in the average prices of second-hand homes for sale in the Real Estate Index photohousethe average Catalan has to dedicate the entire gross salary of 8.6 years (103 months) to paying the mortgage on his home purchased in 2022, compared to the 8.2 years (98 months) he invested in 2021 and the 8 years (96 months) needed in 2012, .
In 2022 the price of housing for sale in Catalonia closed with an annual increase of 3.9% and placed the price in December at 2,643 euros per square meter. This means that, taking into account the average gross salary registered by InfoJobs, which in 2022 was 24,590 euros (2,049 euros gross per month if we divide it into 12 payments); Catalans have to dedicate 8.6 years of their full salary (103 months) to paying the mortgage on an 80-square-meter house.