The breakneck rise in the Euribor rate has led to a significant increase in mortgage payments. This prompted the government to introduce a new Code of Good Mortgage Practice in November 2022, in which it expanded access criteria. In the first seven months of the year, 42.8 thousand applications for this code were submitted, but only 9% were approved. That is, in the first 7 months of the year, 3,852 requests for the Code of Good Practice were approved.

Of the total number of requests 40% of applications were rejected (i.e. 17,120 applications), in most cases due to non-compliance with code requirements.. The remaining 50% is still being processed, but the Bank of Spain estimates that 50% will be approved and another 50% will be rejected. However, in the financial stability report, which was presented this Monday, they note that it is too early to assess how the new code works, since it is a “very short” period, and also long arrears on mortgages take a long time. occur on average two years.

However, the report notes that the volume of requests for both the reformed Code of Good Practice 2012 and the new Code of Good Practice 2022 in a single semester is high compared to the experience of the previous Code. Angel Estrada, director general of financial stability, regulation and resolution at the Bank of Spain, explains that the number of applications is lower than expected because when they made the forecast, they expected higher unemployment and falling incomes.

“There have been more positive trends in employment and income than we initially anticipated,” Estrada said. Taking this into account, the CEO explained that it is too early to make an assessment and know whether there are many or few applications and those approved, because it is necessary to have more information. In addition, he highlighted that almost three years later, applications for the 2012 Code of Good Practice were still being received. It was in 2017, when the economy improved, that the number of applications dropped.

Estrada insists that such measures make sense as long as they are temporary, as they should be considered exceptional. “Customers are aware of everything they sign and there are a number of conditions that need to be taken into account overall,” he added.

In addition, he believes that it is too early to assess whether the revenue targeted by the code will be expanded or extended as proposed in the PSOE-Sumar agreement. “This is not a process that happens today and tomorrow, it takes time,” Estrada noted and added that we will have to see how long high interest rates continue and how they will transfer to mortgages.

He also indicated that his conclusions about how the code works were consistent with what was expected and what was said previously. At the same time, Estrada clarified that it is necessary to take into account that the economic situation in 2012 was not the same as the current one, as were the mortgage conditions.

The report shows that of the 40% of applications rejected, 90% are due to non-compliance with criteria. Subjects explain that non-compliance varies, as it ranges from exceeding the target income level (€29,500), a higher home value or a not so high increase in financial burden. the code says.

However, approximately 1,000 claims were filed from these rejected applications, of which almost 90% were awarded in favor of the house. “This is consistent with historical experience.” say the Bank of Spain. Moreover, they stated that 90% of failures due to non-compliance with the standard are within the normal range.

There have also been movements outside the Code of Good Practice. The Bank of Spain is also reviewing the remaining mortgages outside the scope of the Code of Good Practice and confirms that there have been restructurings, refinancings and an increase in renegotiations. They noticed that Many variable rate mortgages have been converted to fixed rates. “This is positive because it makes the financial situation of households more predictable,” Estrada said.

Regarding a possible increase in the number of applications in the coming months, the Bank of Spain clarified that nothing is certain, but clarified that there are still mortgages that have not received the entire increase in Euribor. Thus, they explained that 30% of mortgages are awaiting interest rate revisions of more than 100 basis points, that is, 1%. The bulk of the remaining mortgages have already been made and there is very little renegotiation.

However, Estrada reminded that the mortgage is the last thing to be paid off, and that it will take an average of two years to do so, and this will happen if major events occur, such as a drop in income or loss of a job. “This evidence of the mortgage repayment culture in Spain was very relevant and continues to be maintained,” the director of financial stability said.