Sumar offers adjustable fixed-rate mortgages based on energy tariff model

Sumar presented a non-legal proposal to the Economic Commission of the Congress of Deputies to discuss the introduction of regulated fixed-rate mortgages for the purchase of primary residences. The parliamentary group notes that the aim is to “end the false transfer of mortgage risk management from banks to households.”

“This transition is enabled by poor mortgage regulation, which allows for a marketing loan policy for home purchases that results in adjustable-rate mortgages outweighing fixed-rate mortgages, resulting in higher costs and financial instability for homes,” says Sumar in his book. offer. It also notes “the more negative impact of restrictive monetary policy on Spanish families during periods of inflation like the one we have just experienced.”

Sumar also believes that the mortgage model has “negative consequences that extend to lending institutions, which lose reputation due to this policy and may increase their default rates.”

The parliamentary group notes that variable rate mortgages dominated in Spain, accounting for 90% until 2015, although since the burst of the bubble, fixed or mixed rate mortgages have gained prominence and account for six out of every 10 mortgages . However, “a predictable and gradual reduction in the Euribor rate in the coming months promises to make variable rate mortgages dominant again.”

“Data from the Bank of Spain and the Spanish Mortgage Association show that in June 2022, before the European Central Bank began raising interest rates, more than 70% of the €626,680 million balance of total mortgages outstanding (50% of GDP) were subject to variable interest rates, which puts Spain in an abnormal and vulnerable position to any inflationary process,” says Sumar.

Lower Euribor rate

With the European Central Bank (ECB) cutting official interest rates to curb inflation and stagnant activity in Germany and France, the Euribor rate has fallen to 2.7% in recent days, a low never seen before. from autumn 2022. This benchmark for most mortgages and loans in our country and in the eurozone as a whole was above 4% a year ago.

Namely, in September 2023, Euribor averaged 4.149%, reaching a ceiling in this cycle of monetary austerity. The decline since then has been very pronounced and over the past six months has led to cheaper adjustable rate mortgages, which were subject to annual resets. Loan payments, which are renewed every six months, were also reduced by a few more months. Likewise, the cost of new mortgages is falling to such an extent that some experts warn it is driving demand for home purchases and risks overheating the property market with already soaring prices.

Electricity market example

Sumar’s proposal would follow the example of regulated tariffs in the electricity market, “where consumers can choose between market tariffs, which are subject to change, and regulated tariffs, which provide greater stability and predictability.”

The idea is to create a “fixed-rate adjustable mortgage” that “would be accompanied by a minimum risk profile that the borrower would have to meet to access it, and that would guarantee his solvency to repay the mortgage payment.” “Obviously, this regulated mortgage does not limit the other mortgage offerings that lending institutions are willing to offer, but it does establish a reference that they will be required to offer in any debt transaction for the purchase of a primary home. In addition, current mortgage holders will have the opportunity to convert their mortgage into a new regulated mortgage,” the training explains.

Thus, those with a mortgage will have to meet a number of requirements, such as having a stable employment relationship and a maximum mortgage payment limit, as well as the remaining interest on debts relative to the mortgagee’s income of 40%.”

The adjustable mortgage’s fixed rate will be equal to the rate on the 10-year Treasury note. “This equivalence is due to the fact that the risk that the organization takes on when issuing a mortgage loan is zero, since it has a double guarantee.” On the one hand, “the cost of the provided guarantee exceeds the amount of the mortgage loan by 20%.” On the other hand, “a mortgage guarantee in Spain is personal, that is, the mortgaged party is responsible with all his income and assets to meet the payment of the debt, and not just the value of the mortgaged house, since there is no dacion.” in payment, except in cases of extreme vulnerability.”

In addition, the maximum mortgage term will be 30 years, and the maximum loan limit on the value of the home will be 80%.