According to the Bank of Spain, Spanish households and companies will begin to receive relief on their contributions starting with a review in March this year. In its report on the financial position of households and companies, published this Wednesday, the organization considers the transmission of monetary policy and interest rates to the real economy to be “full.” This will make it cheaper for households and businesses to pay off their obligations in 2024.
Thus, the report shows that higher benchmark interest rates compared to interest rates on variable rate loans “would be substantially full,” so the analysis It appears that the contracts renegotiated in January of this yearwhether mortgages or business loans will see rates rise by five basis points, while those undertaking an annual review will see rates rise by 65 basis points.
In the paper, they foresee that, given current market expectations for interest rates, downward revisions will begin “from March 2024” for annual repricing contracts with the 12-month Euribor rate. They estimated those cuts “will exceed 150 basis points” for upgrades that occur “in the final period of 2024,” they said.
Thus, between December 2023 and the first quarter of 2024, the Bank of Spain emphasizes that 7% adjustable rate mortgages pending payments (outstanding balance) will increase their value by 100 basis points or more, while, for their part, 10% of loans on these terms will fall by at least 50 basis points.
Regarding business loans, the BdE notes that 2% of fixed rate loans are subject to an increase. 100 basis pointswhile 25% of variable rate loans would fall “50 basis points or more.”
Thus, the agency expects that interest payments on variable mortgage loans will begin to “gradually decline” over the course of this year and reach levels stabilization in 2025 be at a level higher than before the ECB started raising rates.
In the case of fixed-rate loans to companies, they provide for a “defined path upward” on repayment because the vast majority of contracts were signed before the current rate hike cycle.
Families prefer to pay off debt
During this period of the high interest rate cycle and given the lack of profitability of bank savings, amortization “was also high in Spain”, reflecting incentives to amortize adjustable rate mortgages. That is, families prefer to use their savings to pay off their mortgage rather than keep it in the bank.
This was the household savings rate in the third quarter of 2023. But this is encouraged not only by high interest rates, but also by the high cost of living. with recovery in consumer spending, “resulted in a decrease in the savings rate by 2.8 percentage points,” to 9.1%. Despite the fall, the Bank of Spain reiterates that “it continues to remain slightly above its historical average.”
“Households continue to increase their trend towards increasing liquid assets, while at the same time they have achieved a realignment of their portfolios away from cash and demand deposits towards other higher rewarding liquid assets such as long-term deposits, treasury bills and investment funds,” – they say.
Thus, the decline in debt and rising wages led to a decline in the household debt ratio to e.l 76.6% of gross disposable income in the third quarterThat’s the lowest level since 2022 and 12 percentage points higher than the eurozone’s 89%.