Monday, January 17

Banks always win: also with the fixed rate mortgage war

The war of mortgages held by banks at a fixed rate yield good results, judging by the most recent figures available to you

According to data from the National Institute of Statistics (INE) for October, two out of every three mortgages that are signed do so at a fixed rate. Specifically, 67.2 percent compared to 32.8 percent that do so at a variable rate.

This percentage of fixed-rate mortgages has been above 60 percent for six months in a row and sets a new record.

“We are facing a battle fought by financial institutions, in which they try to compete with the level of the Euribor, lowering prices to stimulate sales.”

“In fact, throughout 2021, we have seen several entities with the largest price drops in memory,” explains MarĂ­a Matos, Fotocasa’s director of studies.

The current interest reduction conditions are causing many small savers to jump into buying a home, continues Matos.

He adds that “the health of the banks is crucial for financing to continue reaching the pockets of Spanish families. It is proof that banks are facing this situation with healthy accounts and with a solid foundation.”

Why does the bank bet on the fixed rate

But this good financial health that banks have is not the only reason why the bank offers mortgages at a fixed rate.

The explanation can be found in the expansionary policies of the European Central Bank (ECB), first as a consequence of the financial crisis, and, secondly, due to the crisis caused by the coronavirus pandemic.

And it is that the Euribor has been negative since February 2016 and interest rates at zero percent since March of that year. Expectations are also that the price of money will remain at that level for another year, throughout 2022.

This means that the banks cannot attract business through deposits, whose profitability has been depressed for several years, and which have been turned into mortgages.

But the negative Euribor and the impossibility of lowering the spreads even more (the best ones are at levels close to 0.60 percent, figures similar to those of the real estate bubble) have made them turn to offering fixed-rate mortgages.

With them, the bank still has some room for improvement, but regular and fixed income is guaranteed for a long period of time without being affected by fluctuations in the Euribor.

The bank keeps their swords raised

This, together with the interest in buying a home arising from the pandemic, makes the banks keep their swords raised. For example, among the entities that have lowered rates in recent weeks, Openbank stands out.

The entity has cut its fixed and mixed rate loans by 10 basis points to stand at 1.15 percent APR and 1.05 percent NIR respectively.

In addition, in order to speed up the plans and that the mortgaged person does not have the temptation to consult another entity, the bank reduces even another 10 points if the appraisal is requested in less than 20 days and a mortgage of more than 150,000 euros is requested.

This offer joined others such as rewarding clients for bringing in new mortgages.

For its part, ING also reduced the prices of its mortgages by 10 basis points. The fixed orange mortgage continues to position itself as a competitive option with a new installment of 1.40 percent.

With these latest movements, fixed-rate mortgages are about to fall below the 1 percent barrier for the bank customer.

The bank closes 400,000 mortgage operations this year

The INE’s October mortgage data shows the good health of the real estate sector, as it registered a year-on-year rise of 27.9 percent, leading to eight months of consecutive year-on-year increases.

Thus, October closes with 36,249 mortgages granted, a figure that places the contracting of these loans at levels much higher than those we saw during the impact of the pandemic.

“This high interannual variation highlights the great dynamism that the real estate sector is experiencing and, specifically, the purchase of housing”, which will continue to favor the production of mortgages.

For the whole of the year the figure has risen to 400,000 mortgages.

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