Author: Iván García

Source: España Diario

Millions of Spaniards with a mortgage are facing increasing uncertainty. The rise in interest rates is expected to cause their mortgage payments to soar. In response to this potential crisis, both the government and the banking sector have decided to take action.

The government is considering a proposal from its partners to impose a cap on mortgage prices. Meanwhile, banks are advocating for freezing mortgage payments for one year. The measure to be implemented would affect approximately 70% of those with variable-rate mortgages.

Until recently, borrowers enjoyed very low interest rates. However, the situation has dramatically changed in recent weeks, and the outlook is not optimistic.

Possible Drastic Measures by the Government Regarding Mortgages

The banking sector is not in the best shape regarding its reputation. They warn that decisions need to be made calmly, recognizing that the government “is acting desperately,” according to La Información. They believe that, in this situation, it is up to them to “take control of the negotiations.”

They estimate that there is “room for profit in commissions, which could help contain the rise in payments.” They fear that the worst outcome would be the government imposing strict regulations on them, which they are trying to avoid at all costs.

Banks Propose Freezing Payments

The proposal from banks involves freezing mortgage payments. This would only apply to certain cases and not to all borrowers. The government partners’ suggestion would place the sector in a challenging position, as they would face three significant issues.

Firstly, the proposed cap would significantly limit their revenue, and they would need to provision for falling loans. Additionally, they would face a reputational crisis if evictions occurred. But the bad news does not end there.

The Congress is considering a new tax on banking entities. If approved, the goal is to generate €1.5 billion over the next two years.

The banking sector is proposing a plan similar to the one implemented during the pandemic. At that time, various parties agreed to a model where principal and interest payments were deferred for vulnerable groups.

During that period, banks also suggested that the most vulnerable pay only interest for a limited time. This is another solution that could be considered now.

It should be noted that such a moratorium would involve modifying the loan term, primarily because there would be a number of payments left amortized.

What If the Government’s Measure Is Approved?

If the cap proposed by government partners is enacted, banks foresee two scenarios. The first is applying a maximum interest rate of 1.5%. The second option is that unpaid interest would be transferred to payments for the next fiscal year.

The Executive, led by Pedro Sánchez, has launched a campaign against the banking sector but is also aware that it needs the banks to recover from the crisis as quickly as possible. However, it has already imposed new taxes as a significant penalty.

The government must decide on the best option for all parties involved. The measure taken will need to align with the interests of its European partners and regulators while preventing the collapse of the banking sector.