Why are more mortgages canceled in Spain than those that are contracted?

The Spanish mortgage market has experienced a significant bump in 2023. So much so that, since the beginning of the year, there have been more mortgage cancellations than contracts. According to the National Institute of Statistics (INE), between January and May of this year (the latest data available) more than 190,000 housing loans were cancelled, while new registrations of these products in the Land Registry barely touched 170,000. .

But why are more mortgages canceled than those that are contracted? According to the financial comparator HelpMyCash.com, there is a factor that explains both the increase in settlements and the decrease in new signatures: the rise in the Euribor caused by the rise in interest from the European Central Bank.

Hiring plummets due to rate hike

From July of last year until today, the European Central Bank has raised its main interest rate up to nine times to combat high inflation: from 0% to 4.25%. And this change in policy has affected the Euribor, which is the index with which the interest on variable mortgages is calculated and represents the average rate at which the main entities on the continent lend money to each other.

The Euribor, specifically, has shot up from 0.992% at which it was listed a year ago to 4.149% registered in July 2023. It is logical, therefore, that applications have dropped and that recruitment has plummeted. The INE data reflect that, between January and May 2023, the registration of housing loans has decreased by 11.9% compared to the same period last year.

More amortizations to combat the rise in the Euribor

But the rise in the Euribor has not only affected newly contracted mortgages. Variable-rate housing loans that are in force, whose interest is calculated with this index, have also become more expensive. And this explains, to a large extent, why the number of mortgage cancellations has increased by almost 11% so far this year, according to the Mortgage Statistics of the National Institute of Statistics.

From HelpMyCash they explain that many clients who had a variable mortgage with a short term pending have canceled it ahead of time so that the fee for the rise in the Euribor would not skyrocket. In fact, the Bank of Spain itself acknowledges that a good part of the families that collected savings during the pandemic have now used them to pay off their mortgage debt.

Added to this is the fact that a good number of variable-rate mortgagees have taken out a new mortgage loan to cancel theirs and improve their conditions.. For example, to switch to a fixed or mixed rate and thus pay a stable installment or to reduce your differential and thus lower the amount of the monthly payments.

Likewise, according to the comparator analysts, part of the increase in cancellations may also be due to the fact that the term of a large part of the mortgages that were signed during the real estate bubble at the beginning of the millennium has ended, as well as the sales that were have been produced from mortgaged homes (in these cases, the loan is paid off with the money from the sale).

Creditor subrogations are also growing

In parallel, there is another operation that is beginning to grow due to the rise in rates: creditor subrogation, which allows a mortgage to be transferred from one bank to another to change its term or interest. According to the National Institute of Statistics, in May 2023, 2,096 modifications of this type were registered; 10.4% more than in the same period last year.

HelpMyCash analysts affirm that this is due to the fact that there are more and more variable-rate mortgagees who transfer their loan to another bank to stop at the fixed or mixed rate or to lower their differential. In this way, they can reduce the fee they pay monthly or they can freeze it so that it does not go up any more because of the Euribor. On the comparator website, a free surrogacy simulator can be used to calculate how much a person can save if they carry out this operation.