Spain set to approve mortgage relief plan

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Spain will act to reduce the impact of higher borrowing costs on the country’s most vulnerable mortgage holders by approving a package of relief measures.

The cabinet is due on Tuesday, after weeks of negotiations between the government and banks, to authorise moves that include a reduction in interest rates during a five-year grace period.

Spain is especially vulnerable to the European Central Bank’s aggressive rate rises because roughly three-quarters of its mortgage holders have variable rate contracts linked to its monetary policy. These are generally adjusted only once a year.

The most vulnerable families, defined as those with annual income below €25,200, will be able to reduce their interest rates to Euribor minus 0.1 percentage point under the proposed measures. Many mortgage holders are paying 1 percentage point above Euribor, an interbank rate that anticipates ECB moves.

They will also be able to extend the life of their loans by up to seven years under the planned changes, which involve reforms to an existing code of good practice for the mortgage market.

The six-month Euribor rate as of November 18 is at 2.34 per cent while the ECB’s main deposit rate is 1.5 per cent.

The economy ministry noted that the “final details are still to be finalised” in its talks with the banks.

Families in a higher income bracket, with earnings up to €29,400 a year, will be able to freeze the size of their monthly repayments while also benefiting from the seven-year loan extension.

The Bank of Spain previously said that a 3 percentage-point rise in interest rates would lift the number of stressed households — those spending more than 40 per cent of their income on debt payments — by 400,000 to one in every seven.



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