Government eases mortgage burden on vulnerable families
The Council of Ministers has approved a regulatory package, negotiated with the banking employers’ associations, which will alleviate the financial situation of vulnerable families or those at risk of vulnerability due to the rise in Euribor.
More than one million households will be able to benefit from this protection, approximately one third of those with variable rate mortgages.
Even so, some families, especially those that are vulnerable or at risk of vulnerability, are feeling the effects of the rise in Euribor, which is why the government has approved this set of measures that will provide citizens with a “menu of options” to cushion the mortgage burden and have more “certainty” about their level of expenditure in the medium and long term.
Relief measures for mortgagors
The initiatives adopted today act in three ways, as explained by the First Vice-President: they improve the treatment of vulnerable families; they create a new framework for action for middle-class households at risk of vulnerability; and they establish general measures applicable to all mortgages.
Most vulnerable debtors
Firstly, the current Code of Good Practices for vulnerable mortgagors, those families with incomes of less than 25,200 euros per year and an increase in the effort of 50%, with homes of up to 300,000 euros, is reinforced. Specifically, the interest rate applicable during the 5-year grace period for the payment of the mortgage principal is reduced from Euribor plus 0.25% to Euribor minus 0.10%.
In addition, it introduces the possibility for families to request debt restructuring on more than one occasion; it doubles to 24 months the period for requesting dation in payment of the habitual residence, and extends from 6 to 12 months the period for requesting social renting in the home itself from the financial institution, for a maximum amount of 3% of its value, by people in a situation of vulnerability who are subject to eviction from their habitual residence.
As an example of the impact of these measures. A family with a standard mortgage of €120,000 and a monthly payment, after the interest rate review, of €524, will see its payment during the 5-year grace period reduced by more than 50%, to €246. The scope of the Code has also been extended so that it applies to more than 300,000 families. Thus, vulnerable households that have not experienced a 50% increase in their mortgage burden will also be able to benefit from the Code, in this case with a 2-year grace period on the payment of the principal, a lower interest rate during this period and the possibility of extending the mortgage term by up to 7 years.
Households with an income of less than 29,400 €
Protection is extended to middle-class families who are at risk of vulnerability as a result of the rapid increase in the mortgage burden: the new Code of Good Practices will apply to households with an income of less than 3.5 times the Public Indicator of Multiple Effect Income (IPREM), around 29,400 euros per year, who have to pay a mortgage payment of more than 30% of their income and who have experienced an increase in this mortgage burden of at least 20%.
For these cases, financial institutions will have to offer the possibility of freezing the instalment for 12 months, a reduction in the interest rate applicable to the principal that is deferred and an extension of the loan term of up to 7 years.
This new catalogue of measures will allow up to 700,000 families to gradually adapt to the new interest rate scenario.
Additional measures
The approved initiatives include others aimed at further reducing all costs of converting variable rate mortgages to fixed rate mortgages and eliminating early repayment and conversion fees during 2023. In addition, the Banco de España will prepare a guide for mortgagors in difficulty, and the monitoring of the application of both codes will be reinforced.
If you have any doubts regarding this issue, please do not hesitate to contact us, by telephone to Carles Monfort Codina or by e-mail to cmc@btsasociados.com, we will be delighted to help you.