Spain to offer aid to homeowners amid interest rate shock

The Spanish government has unveiled a package of measures aimed at providing relief to homeowners who are struggling in the face of spiralling interest rates.

The left-wing coalition administration of Pedro Sánchez estimates that around 1 million households will benefit from the scheme, which includes increased provision for the renegotiation of mortgages and making it easier to switch from variable-rate to fixed-rate loans.

Spanish economy minister Nadia Calviño said the war in Ukraine, which had caused a rise in inflation, had also contributed to an increase in mortgages.

“This rise in interest rates has a substantial impact on the financial situation of many families, especially those with a lower income and which are the most affected by the rise in the cost of living,” she said after the cabinet meeting at which the package was approved.

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The measures, which are included in a banking industry code of good practice, are expected to come into effect in January. Although the banking sector has broadly supported the plan, it had yet to sign off on the measures on Tuesday, as the Association of Spanish Banks (ABE) analysed the details.

The scheme amends an existing code of good practice introduced to the financial sector in 2012 in the wake of the euro-zone crisis. Under the new terms, vulnerable homeowners will be able to restructure their loans at lower rates over a five-year grace period during which they can delay existing due payments. Also, a second debt restructure will be made possible where necessary and commissions charged for switching to a fixed-rate mortgage will be eliminated throughout next year.

A total of 3.7 million Spanish homeowners have variable-rate mortgages, which until recently had dominated the market. However, the economy minister said that around three-quarters of new mortgages being taken out are at fixed rates, because of the sharp rise in interest. The annual income threshold to be eligible for the measures was set at €25,200.

The government provided an example to illustrate how Spaniards could benefit from the new rules: a family with a €120,000 mortgage currently paying €524 per month could cut their monthly payments to €240 for the next five years.

Meanwhile, an income threshold of €29,400 has been set for potentially vulnerable middle-class families wishing to benefit from new softer rules regulating their mortgages, including the possibility of a one-year freeze on repayments and an extension of loans if they become overly burdensome.

Spanish homeowners were heavily affected by the euro-zone crisis. As private debt soared, many were unable to meet mortgage payments, leading to a wave of evictions. However, non-performing loans are substantially lower than they were during that crisis.

“Fortunately, the situation in the mortgage and financial markets is very different from when we had the financial crisis that began in 2007,” the economy minister said, explaining that these new measures were aimed at providing relief to homeowners rather than responding to a macroeconomic shock.