The sale of housing is going through a sweet moment. Days of wine and roses. According to him Statistics National Institute (INE), in the past month of August, sales rose by 57.9% compared to the same month of 2020. For its part, the data from the Spanish Mortgage Association (AHE) indicate that the mortgage balance for house purchase increased by 0.6% from January to June. And it reached 475,464 million euros.
There are several factors that have driven the market. On the one hand, the recovery of the economy after a difficult 2020. On the other, family savings, which increased as a result of economic instability. And finally, low interest rates.
A shaker that has inflated the mortgage market in recent months. A few months in which there is a particular ‘battle’ between the granting of fixed and variable mortgages. Banks continue to give them, but operating under prudent criteria. Of course, if in recent years the variable rate prevailed, now the prominence is for the fixed rate.
According to Technohousein the first semester, variable rates were only 15% of the total. The mixed ones reached 5%, and the fixed ones, 80%. This has helped that fixed rate and variable rate are almost on par. But there is a feeling in the air that interest rates are going to rise. Some experts advance 2023 or 2024 as the moment when the Euribor will rise.
“The mortgage market, like the real estate sector in general, continues to show stability and strength. To this has been added that the pandemic has boosted housing demand and, therefore, also loan applications”, says José Manuel Fernández, deputy director general of UCI (Unión de Créditos Inmobiliarios).
Advantages and disadvantages
With this panorama, the question is obvious: which mortgage is more interesting: the fixed one or the variable one? It all depends on when you sign up. But, even more, of the circumstances, personal preferences and risk aversion of each person.
“The main advantage of taking out a fixed-rate mortgage is that the mortgagee will pay the same installment throughout the life of the mortgage. This provides stability and peace of mind against possible future variations in the Euribor”, says Lídia Subirá.Key account manager at Trioteca and head of the Center for the Study of Triotheque. Their ‘disadvantage’ is that they used to be more expensive. They used to because, as has already been said, the difference between the two has been narrowing.
A fixed rate mortgage facilitates the financial organization of the family and avoids possible future unforeseen events. “Even so, it is true that in the first year, a fixed-rate mortgage can involve a higher monthly fee than the variable rate, since the Euribor is currently in negative values,” they add from Trioteca.
Nor should we forget that we are going through a period with one of the best and largest fixed-rate offers in history. In other words, the interest rates are really attractive.
“The main advantage of variable mortgages is the potential savings. The starting interest rate of this type of mortgage loans is usually lower than that of fixed mortgages, as well as commissions for early cancellation“, points out José Manuel Fernández.
Of course, it is subject to the evolution of the Euribor and to the revision of the interest rate that is applied every six months or annually depending on the bank. “This adds uncertainty to the future fee to be paid. It is also true that, if the evolution of the Euribor continues to be negative, the mortgaged party can take advantage of a possible lower monthly installment, taking into account the risk that this entails”, clarify Lídia Subirá.
Another aspect that differentiates fixed and variable mortgages is the early repayment commissions that the new Mortgage Law of 2019 applies to both modes. In the case of fixed mortgages, the maximum is 2% in the first 10 years and 1.5% in the remaining years; while, in variable mortgages, the maximum commission that is applied is 0.15% in the first five years or 0.25% in the first three years of the mortgage.
Beyond the type of mortgage contracted, the data shows that Spain is a country of owners. “Also, public aid for refurbishing homes in favor of energy efficiency are factors that will boost purchases until the end of the year and throughout the next financial year”, indicates José Manuel Fernández.
From UCI they estimate that the number of mortgages signed in Spain in 2021 could grow between 10% and 12% compared to 2020. According to Tecnocasa, mortgage holders spend 32% of their income on meeting the commitment to have a home. The average mortgage term is 28 years. And the average fee is 445 euros, if it is fixed, and 409 euros, if it is variable.