The rising Euribor will trigger the percentage of income allocated to mortgage payments
Can they be the mortgages a problem for listed banks? The rise of euryborwhich at some point this year could reach 3.75% (according to Funcas estimates), and a high inflation (despite aggressive action by central banks) will bring an increase in the cost of mortgage loans. The consequence of this will be less disposable income for households, which they could allocate 40% of their income to the payment of their mortgage loans, in breach of the recommendations of the Bank of Spain. Despite the fact that it may lead to an increase in delinquencies, everything indicates that defaults will be less widespread than in the previous real estate crisis and concentrated in certain areas.
The banking supervisor advises that the annual income allocated to the acquisition of a home should not exceed 35% of income, a percentage that will be comfortably exceeded according to the calculations made by Deutsche Bank, due to the rise in the Euribor. “The average income ratio for households with mortgages could top 35% by 2023, and it could probably be close to 40% in 2024, which could become a major problem, especially in geographies with higher stress levels”, they explain from the investment bank. However, it would not be strange if in premium locations and in large cities they exceeded the 50% level sometime.
Still, experts believe affordability would still be reasonable, depending on the region even if the benchmark rose. Don’t forget that the current average in Spain is 30%, although there are regions, such as the Balearic Islands, where the effort reaches 60%, while in Madrid it is below 40%, according to data from the Association of Property Registrars. Catalonia and the Basque Country could register greater tension in the effort in the future.
Taking into account that 75% of mortgage loans in Spain are subject to the evolution of the index, the average in Spain would be 36% for a Euribor of 3% and would climb to 39% if the index continued to rise until reaching in 4%. By region, it could be worrying in Madrid, with an increase of 7 basis points to 45%, while Catalonia and Andalusia would have more manageable levels, with 38% and 36% of income dedicated to mortgage payments.
Although in the case of Madrid is special This increase would be offset by higher revenues. Where it would be worrying would be in the Balearic Islands, where the percentage of the income destined to pay the mortgage of the credits could suppose up to 80%. It must not be forgotten that the mortgaged debtors who review their credits with the data of Januarythey will see how the installments will increase on average by 280 euros for a 25-year mortgage of 150,000 euros (in January 2021, the Euribor closed at -0.477%).
Problem for banks?
Still, everything points to the fact that the delinquency will be contained. Estimates are that it will reach 4.5% this year, after having returned to 2008 levels. Financial sector sources explain that the key continues to be the level of unemployment in Spain, which remains contained, being relatively low compared to the previous crisis when delinquency skyrocketed. “The total impact would not be negligible, but it should be mostly manageable”they explain from Deutsche Bank.
However, different industry analysts insist that the rise in the Euribor will favor the appreciation of mortgage loans, the positive impact of which will not only be seen in the evolution of the interest margin of banks for this fourth quarter of 2022, but will continue throughout 2023. As for the provisions that the banks could carry for these payments, it is estimated that they could represent 10% of the income from the interest margin, but spread over 3 years.
Although everything indicates that the impact will be limited, the exposure of each bank to mortgages will have to be taken into account. Among the banks listed on the selective, those that could suffer greater stress would be Unicaja Banco and Caixabank, whose total percentage of mortgage loans out of the total exceeds 50% and 40% respectively. Paradoxically they could have greater protection of your mortgage portfolio if an economic downturn occurs than those banks more exposed to SMEs and companies such as Banco Sabadell or Banco Santander. By region, Caixabank would be affected by the strong exposure to Madrid via Bankia absorption, or Unicaja Banco due to the effort it makes to gain market share in the capital. In Catalonia, Caixabank, Banco Sabadell and BBVA concentrate their presence.