With the aim of reducing the economic effort allocated to the mortgages of more than one million households at risk of vulnerability or vulnerable, on November 24, Royal Decree-Law 19/2022 began to apply. An effort that has increased in recent months due to the increase in the Euribor.
The measures adopted in the new Royal Decree have been negotiated between the Bank of Spain, the central government and the banking employers. The main purpose of the Royal Decree is toalleviate the burden on household mortgages and create greater stability in the medium andlong term in their spending quota. For these families, they are offered the option of choosing the help that best suits their needs and their economic status.
From the Ministry of Economic Affairs and Digital Transformation, it has been guaranteed that the Royal Decree “will benefit more than one million families, approximately a third of households that have variable mortgagesin Spain. They provide a ‘menu of options’ so that families can choose the one that best suits their particular case and do not pose a risk or a macroeconomic impact. Fortunately, the scenario is very different from 2007 and households have a healthier position than at other times in our history.”
In general, within the Royal Decree-Law we can find three main aids:
- Boosting the treatment of vulnerable households
- Create a new temporary policy environment for households at risk of vulnerability, a situation caused by the increase in interest rates
- Establishinggeneral improvements to improve the early repaymentof loans and the pass-through of such fixed-rate mortgage loans.
According to these ways, we can find three different types of aid:
- 1 Grants for families in vulnerable situations
- 2 Grant for families at risk of vulnerability
- 3 Free conversion from variable to fixed loan
- 4 Case studies of aid benefits
- 5 Voluntary subscription by financial institutions to the Code
- 6 Download Royal Decree 19/2022, of June 26, which includes the package of measures to alleviate mortgages on habitual residence
1. Grants for families in vulnerable situations
First, it must be defined what will be considered as a vulnerable family. A vulnerable household will be that family that has an income below 25,200 euros at the annual level, an income below triple the IPREM. To access this aid, another requirement is to allocate a financial effort of 50% of your income to the collection of mortgages. In total, this grant will benefit around 300,000 families.
Regarding this aid, there are two ways of improvement:
- If the mortgage burden has increased below 50%, families will be able to access an extension of the term up to 7 years, a grace period of 2 years and an interest rate lower than the current one during the course of those two years.
- On the other hand, if the mortgage burdenhas increased above 50%, families will have the option of restructuring mortgages with a reduction in interest in a period of 5 years of grace set out in the Royal Decree. In the same way, the deadline for requesting the collection of the property will be increased to two years with the option of being able to carry out a second restructuring. In short, for habitual residence, a new application period for the lease has also been generated.
With regard to this measure, the Ministry has issued the following statement. “This measure is necessary for those families who, as a result of the rise in interest rates, reach excessive levels of mortgage effort that force them to reduce basic expenses and jeopardize the payment of the mortgage, can receive adequate treatment.”
2. Grant for families at risk of vulnerability
This new package also brings the novelty of implementing a new Code of Good Governance. This Code will also allocate aid to debtors belonging to the middle class, but who are at risk of vulnerability.
Access to this aid will be allowed to families who have an incomebelow 29,400 euros per year, an income three and a half times more than the IPREM and a mortgage loan contracted until December 31, 2022. A loan of which families have a financial effort above 30% of their income and that this effort must have increased by 20%.
In short, the banks would allow these families the option of freezing the rate for one year, including an extension of the 7-year term and an interest rate below the extended interest rate level.
3. Free conversion from variable to fixed loan
With a view to 2023, commissions offered for early repayment will be abolished. This implies that debtor families will have the option ofreducing the amount pending collection without suffering an economic penaltyfor it. In addition, in 2023, no costs will be charged for transforming a variable-rate mortgage loan into a fixed mortgage.
In short, actions will be allocated to promote economic education, increasing the monitoring of both codes being applied. On the other hand, the Government will permanently reduce the expenses of transforming a variable mortgage to a fixed one. For this reason, the Bank of Spain has been asked to create an informative guide for debtor families at economic risk. In this way, it seeks to increase the transparency of the measure.
4. Case studies of aid benefits
For example, if a family contracted a mortgage loan at the beginning of 2028 of fixed rate located at +1% with a total cost of 120,000 euros and a payment period of 30 years, during 2022 it would have paid a rate of 260 euros that by 2023 would increase to 525 euros.
On the other hand, if a household in a state of vulnerability accesses the measures set out in the Code of Good Practices, the final fee to be paid would be 240 euros. This would mean areduction of 33% compared to 2022and 54% compared to the rate without applying economic aid. On the other hand, for families that do not meet the conditions of the mortgage burden, that is, that their financial effort has not increased by 50%, the rate to be paid would be 305 euros, a decrease of the quota of 42%.
For middle-class families who also apply for aid, the rate during the first year of freezing would be 362 euros. A figure that would reduce this rate by 31%.
5. Voluntary subscription by financial institutions to the Code
It should be noted that banks will not be obliged to apply either of the two Codes of Good Practice. However, once they have adhered to it, they will be obliged to comply with its measures.
With a maximum period of one month, banks can immediately subscribe to both Codes. A deadline set for the measures set out in them to be implemented before the beginning of 2023. The first financial institution to announce that it will subscribe to the Codes is CaixaBank, the entity with the largest movement in Spain.
Finally, for the transfer of mortgage loans to a third party, the bank will have to ensurethe protection of the measures. In this regard, the Ministry of Economic Affairs has assured that the requirements of the aid exposed in these cases will be maintained.