Spanish government and banks agree to ease mortgages for households earning under €29,400

An agreement between the Spanish government and the banking sector that aims to ease the burden of mortgage payments for families earning less than €29,400 was approved by the cabinet on Tuesday morning. 

The executive estimates that more than 1 million households will benefit from the package of measures announced. The decree widens the eligibility criteria stipulated in the Code of Good Practice for those struggling with mortgage debt.  

One third of households with variable-rate mortgages will be able to benefit from grace periods, quota freezes or loan term extensions, according to Spain's first vice-president and economy minister Nadia Calviño.  

In addition, banking commissions for early repayments and changing from a variable-rate mortgage to a fixed-rate mortgage will be abolished in 2023. The aim is for all measures to be in force from January 1. 

'Peace of mind, confidence and certainty' 

At a press conference after Tuesday's cabinet meeting, Calviño said the measures were an "important" package which will allow vulnerable families to have "more peace of mind, confidence and certainty." 

The vice-president also stressed that, despite the cost-of-living crisis and high inflation, the "situation of the mortgage market is very different from that of the crisis of 2007." 

Measures 

Interest rate reductions for a five-year grace period will be available for families with incomes of less than €25,200 per year and who spend more than 50% of their monthly income on paying their mortgage. Households will also have the possibility of a second debt restructuring, and the deadline for applying for 'dation in payment' to settle debts will be extended to 2 years. 

The scope of application of the Code of Good Practice will also be extended, with more families able to access a two-year grace period, a more favorable rate, and the extension of up to 7 years on their loans. 

A new Code of Good Practice will be created that will allow families with incomes below €29,400 to lighten the financial burden of mortgages taken out by December 31, 2022. 

Their mortgage repayments must represent more than 30% of their income and their monthly payment must have increased by at least 20% due to rate increases. 

They will be offered the possibility of freezing their repayment amount for twelve months, a lower interest rate, and extending their loan repayment term to 7 years. 

The measures are a result of negotiations between the Spanish government, the Bank of Spain and the wider banking sector. 

Criticism, within government and beyond 

Spain's second vice-president, Yolanda Díaz – a member of Unidas Podemos, the junior partner in Spain's minority government – criticized the agreement between the economy ministry and the banks. 

It "does not serve to share the burden of the crisis" nor does it mean the financial sector will have to make any "sacrifice," Díaz said. 

Calviño, however, insisted that "today's agreements are from the entire cabinet." 

The CCOO union was also critical of the deal, describing it as "insufficient" because it "does not offer a lasting solution." 

"Structural measures" are needed to deal with the rising cost of mortgages, the union argues, saying these are "not included" in the agreement between the Spanish executive and the banking sector.  

It called for "better regulation", which guarantees access to "sustainable conditions" of financing for people who want to acquire a property. 

2% rent cap increase extended 

The Spanish government also announced an extension of a 2% rent cap increase until December 31, 2023, but the measure has been criticized by housing unions. 

"This is a false limit on rents that, in reality, will not restrict or lower real prices," the Barcelona-based Sindicat de Llogateres (Tenants Union) warned. 

"For one simple reason: no limit is placed on increases for contract renewals or new contracts. Landlords will be able to continue to evict people from their homes through abusive increases every time a contract ends."  

The rent cap extension was agreed by the Spanish government with the Basque pro-independence party EH Bildu as part of a 10-point package in return for support in congrees to pass the upcoming budget. 

Catalonia's governing party Esquerra Republicana is also expected to support the budget.