September arrives and with it the return to school, the alarm clock in the morning and the famous economic cost after the summer holidays. This year, to the usual expenses for textbooks and school supplies, items are added that do not give rest to thousands of Spanish families: mortgages mark their highest prices since 2008 with the Euribor above 4%, inflation in food picks up 10.8% after four months of slowdown, the savings rate of Spanish households stands at the lowest in the last five years and diesel increases its price by 11% while gasoline increases by 7% since the beginning of the summer period. Natural gas, which in recent months has given consumers a truce, is also rising this time around the holidays: its price in the TTF index has gone from the 28 euros with which it closed July to the current 35, on 25 % more due to labor disputes in Australia, the world’s second largest exporter.
“The extra savings due to Covid-19 disappeared last year, since there was a very strong rebound in consumption, but without savings and with inflation, people have to resort to credit to sustain their level of purchases. Spain is a country with traditionally low savings rates and, for the moment, the only delinquency that has increased is that of durable goods, such as the financing of cars and household appliances”, analyzes the economist Javier Santacruz.
The September slope arrives with figures that are beginning to attract attention and shows the moment that the pockets of many families are going through after more than two years with inflation above the target of the European Central Bank (ECB). According to the analysis carried out by the sales application online Milanuncios, the demand for second-hand textbooks has increased 166% in Spain between June and August. In addition, the average price of second-hand textbooks in the first half of August 2023 was 20 euros, four euros less than last summer. “It is likely that in September families will request credits to face the return to school”explains Ana Morales, head of the study service of the National Association of Financial Credit Establishments (Asnef).
Despite this, many Spaniards have not wanted to resign themselves to running out of vacations and have used credit to spend a few days on the beach or go abroad. The latest data on the amount of outstanding balances provided by the Bank of Spain, corresponding to June, show a 7.9% increase in consumer loans, up to 45,868 million euros. From Asufin (Association of Financial Users), they calculate that 10% of these credits is used to cover the cost of traveling. This figure supposes that the Spaniards have borrowed 4,500 million euros to be able to go on vacation.
In fact, in June there was the largest increase in the liabilities destined to pay other expenses that are not housing, with 11,240 million loaned by the banks. The financial sector has found in this product a commercial vein to continue increasing its margins while the granting of mortgages is reduced: in the last year consumer loans have become more expensive by more than 10%. Loans dedicated to the purchase of household appliances, cars, the reform of a home… They have gone from an average interest rate of 7.96% APR in June 2022 to the current 10.24%, exceeding double digits for the first time in the last 12 months, according to data provided by the Bank of Spain. To give a few examples, Sabadell sells loans at an average rate of 19.09%; BBVA, 15.6%; Cajamar, at 13.06%; Santander, at 10.19%, and Abanca, at 10%.
The weight of the house
But the great leg of the indebtedness that families drag are, without a doubt, mortgages. At the end of August, the main central bankers already warned at the Jackson Hole (Wyoming, USA) summit that they do not intend to reduce interest rates in the coming months, so those with mortgages will have to continue with the belt clasped. The Federal Reserve (Fed) opened the door to raising the cost of money in the US and the president of the European Central Bank (ECB), Christine Lagarde, called for more efforts against inflation. The evolution of interest rates is key to understanding how the reference rate for variable mortgages, the Euribor, is working, which stands at 4.065%, and which implies average monthly increases for this type of credit that is renewed in September 250 euros, or what is the same, 3,000 euros per year. Spanish families with a variable mortgage already pay 36.7% more for their mortgage than two years ago. Two years ago, the Euribor was still negative and did not reach positive territory until April 2022, so many families were able to take advantage of a few years to pay much less for their homes.
According to Asufin estimates, the impact on mortgaged families is 2,682 euros more per year for every 100,000 euros of mortgage. These figures mean that, on average, households allocate close to a third of their salary to pay the mortgage loan. The traditional alternative, which is rent, does not give a break either and shows increases of 3.4% in July, standing at 11.59 euros per square meter per month, according to the Fotocasa real estate portal.
The Bank of Spain already warned in July of a “impaired credit quality” in loans granted to families. “Although doubtful loans continued to drop sharply, since the end of 2022 there has been an upturn in loans classified by banks in the special surveillance category. This increase affected credit for house purchase and, to a greater extent, credit for consumption,” he remarks. According to the banking supervisor, 9% of households could not cover essential expenses with their total gross income in 2022, compared to 7% in 2020, given the observed growth in inflation and interest rates. From CaixaBank Research they emphasize that the fact that households are improving their financial position “is not incompatible with the difficulties that some segments are going through, such as those families with variable interest rate debts or those with lower incomes”. “Financing has become more complicated, although for now the delinquency rate is very contained [cerró en junio al 3,5%]. We are confident that if employment holds up in the coming months, the default rate will not grow. Consumer loans are the first to stop paying, before the mortgage,” says Morales.
stone in the shoe
The general increase in prices continues to be a stone in the shoe of family economies and will continue to be so in the coming quarters, according to the forecasts made by the main economic institutions. Estimates point to a year-end with a consumer price index (CPI) of between 4% and 5% due to the so-called base effect, which until the end of 2023 will tend to increase the figures when compared to the slowdown they showed the last months of last year. In August, inflation rose to 2.6% in the midst of the rise in gas and fuel, while subjacent inflation, which excludes energy and fresh food, stood at 6.1%, according to the indicator advanced by the INE. The Spanish economy registers accumulated inflation since prices began to rise in March 2021 of 16%. Two and a half years and just one month -June 2023- with the consumer price index (CPI) below the 2% target set by the ECB.
Inflation has an invisible effect, but one that is palpable beyond the shopping cart and refueling the car. Family savings fell by 60% in two years in 2022 and returned to 2019 levels. At the end of 2022, the Spanish household savings rate fell to 7.2% of gross disposable income, six points per below 2021 and the lowest level in the last five years “in the heat of inflation”, they indicate from CaixaBank Research.
In the first half of the year, the household savings rate stood at 0.9% after spending 199,427 million up to March. Compared to the last quarter of the year, the household savings rate has plummeted by more than 13 points, from 14.5% to 0.9%, according to INE data. The Bank of Spain also acknowledges that, despite the fact that the savings rate increased during the months of confinement due to the health crisis, it was concentrated, to a large extent, in households with higher incomes. “So much so that the quintile of households with the lowest income barely raised their savings in this period”argues the body.
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It must be borne in mind that the growth of the Spanish economy continues to be weak and this also affects household finances. Spain is the European Union country that has grown the least in the last four years, very conditioned by the covid. GDP per capita has fallen 2.4% since 2019, to 24,580 euros per inhabitant, according to Eurostat. The national economy is behind France with a fall in the last four years of 0.21% and flat growth in the Czech Republic.
“Spain closed in position 15 among the 27 EU countries in GDP per capita in 2022, which means falling two places from 2019. Spanish GDP per capita was 85% in 2019 and 79% in 2022”, sentence Alfonso Novales, Professor of Economics at ICAE and member of Fedea.