Real estate loans: the government and the banks agree on an aid package

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The government and the banking sector have reached an agreement on the measures they will adopt to provide mortgage relief for more than a million vulnerable families or at risk of vulnerability due to the rise in Euribor, preserving financial stability, as reported by the Ministry of Economic Affairs and Digital Transformation.

The negotiations that the Government maintains with the employers’ associations of the banks (AEB, CECA and UNACC) and with the Bank of Spain remains open, with no final details closed, but it is expected that the Council of Ministers approve this Tuesday the expansion of the catalog of measures that households can access to effectively reduce their mortgage burden and have more certainty about their level of expenditure in the medium and long term, being able to choose the measure that best suits their needs and their financial situation.

In concrete terms, the package of measures will act in three ways: improving the treatment of vulnerable families, opening up a new framework of temporary action for families in risk of vulnerability due to the rise in interest rates and adopt improvements to facilitate the early amortization of credits and the conversion of fixed rate mortgages.

For vulnerable mortgagors (with income below 25,200 euros per yearthree times the IPREM) the code of good practice approved in 2012 will be expanded and strengthened, so that they can restructure the mortgage loan with a lower interest rate during the 5 year grace period (up to Euribor -0.10%, compared to the current Euribor +0.25). Likewise, the deadline for requesting the donation in payment of the house will be extended to two years and the possibility of a second restructuring is envisaged, if necessary.

Households whose income is less than 25,200 euros per year and who devote more than 50% of their monthly income to the payment of the mortgage loan but who do not meet the current criteria for a 50% increase in the mortgage effort can benefit of the Code with grace period of 2 years, a lower interest rate during the grace period and an extension of the duration up to 7 years.

“This measure is necessary so that families who, due to rising interest rates, reach excessive levels of mortgage stress that force them to cut essential expenses and compromise the payment of the mortgage, can receive a adequate treatment,” Economía said in a statement. .

For example, the Ministry indicated that the application of these measures will allow a family with a typical mortgage of 120,000 euros and monthly fees of 524 euros After the interest rate review, see your share reduced during the 5-year grace period by more than 50%, down to 246 euros.

vulnerability risk

On the other hand, a new Code of good governance to relieve middle-class debtors threatened with vulnerability due to rising mortgage payments, facilitating a more gradual adjustment of families to the new interest rate environment.

Households can benefit from these measures with an income of less than 29,400 euros per year (three and a half times the IPREM) and real estate loans taken out until December 31, 2022 with a mortgage charge greater than 30% of their income and having increased by at least 20%.

Financial institutions must offer all these cases the possibility of freezing the quota for 12 monthsa lower interest rate on the deferred principal and an extension of the term of the loan up to 7 years.

Similarly, Economy reported that expenses and commissions will be further reduced to facilitate the transition from variable to fixed rate and fees for prepayment and switching mortgages from variable to fixed rate will be eliminated throughout 2023.

Measures to promote financial education will also be planned and the monitoring of the application of the two codes will be strengthened.

Compliance

Both codes of good practice will be voluntarily adhered to by financial institutions, which they will be required to comply once subscribed. In the event of transfer of credit to a third party, banking entities must guarantee the protection of this catalog of measures in the event of transfer of credit to a third party.

Financial institutions will be able to adhere to the Codes immediately and the objective is that all the measures adopted will be available from January 1, 2023.

Currently there are 3.7 million mortgages referenced to Euribor. “Thanks to income protection measures and lower credit stocks, households are in a healthier financial position with more savings and less debt than in the past. To this, it should be added that three out of four mortgages are currently granted at a fixed rate, the average residual duration has fallen to 10 years in 2021 and the percentage of households who devote more than 40% of their disposable income to paying mortgages. has significantly decreased in recent years,” the ministry pointed out.

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