The Bank of Spain is considering imposing stricter rules for securing a mortgage, while acknowledging this could have an impact on young and lower-income buyers in the country.
More than half a million mortgages were granted in Spain last year, which was the highest figure in 15 years, but that may all be set to change.
In the most recent edition of its Financial Stability Report, The Bank of Spain said that it continues to study “the potential effects of introducing limits on mortgage lending conditions”.
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According to the institution, the main aim of this would be to strengthen the stability of the financial system and prevent excessive risks in the credit market.
It also acknowledged, however, that this could generate higher costs for families.
Preliminary analyses of the move the Bank of Spain themselves indicated that tightening mortgage conditions would have a direct impact on access to credit, which would particularly affect young people trying to get onto the property ladder and those with fewer financial resources.
As a result, they believe this would mean a bigger shift from buying to renting as less people would be in a position to be able to secure a mortgage and therefore remain in rental accommodation for longer.
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To understand the impact of this move “it is crucial to fully grasp its effects” and determine what kind of limitations would allow for a favourable balance between advantages and disadvantages, the organisation explained.
One way the Bank of Spain believes they could stop young people being affected so much is to incorporate exceptions or less stringent limits for certain vulnerable groups.
This flexibility, according to the organisation, would allow for a more efficient implementation and reduce the negative effects on those who have the greatest difficulty buying a property in the first place.
The study revealed that families in a good financial position purchase homes at prices very similar to their initial target. The median difference between the desired price and the price ultimately paid is only around €1,000.
In contrast to this, families with less financial means buy homes that are significantly cheaper than they initially wanted. In these cases, the median difference between the desired price and the purchase price is around €45,000.
Among those with a higher financial capacity who currently rent, the annual probability of becoming homeowners and being granted a mortgage is 8.4 percent, while for those with fewer resources, that probability falls to 2.8 percent.
The implementation of stricter mortgage requirements is something that financial experts had been predicting at the beginning of this year. Mortgage broker Kelisto said back in January that due to increasing financial risks, banks could become more selective when approving mortgages.
Financial advisor Bayteca agreed saying that “the increase in prices and the need to request more capital to buy housing could lead banks to reject more applications”.
It’s important to remember that so far nothing has changed, the introduction of stricter mortgage requirements must still be studied further and debated on before can be brought into force.
In the same report, the Bank of Spain ruled out the existence of a housing bubble in Spain. Although it acknowledges that housing prices continue to rise steeply, it believes there are no signs comparable to those during the housing crisis 20 years ago.
“We are not observing any strain on household finances or excessive activity in terms of loans,” stated Daniel Pérez Cid, Director General of Financial Stability, Regulation and Resolution.