The brutal rise in the Euribor caused by the increase in official interest rates by the European Central Bank (ECB) is beginning to take its toll on families who got into debt to buy a house. The volume of mortgages that accumulated at least three months of non-payment rose by 3.9% between April and June, to €11,823 million euros, as reported by the Bank of Spain. What is most significant, however, is that the increase with respect to March was €443 million. This is the sharpest quarterly rise since the one that occurred between January and March 2014 (€1,619 million), the quarter in which the peak of mortgage delinquency was reached as a result of the bursting of the housing bubble.
The balance of doubtful mortgages has been falling more or less steadily since the first quarter of 2014. In all the years that have elapsed, there have only been occasional and anecdotal increases in five quarters, but in all these cases they were minor (between 55 and 213 million euros) and were followed by subsequent falls. This time, however, there are signs that this could be the beginning of a turnaround. ECB interest rates are at their highest levels since May 2001, the Euribor is at a 2008 high and high inflation is eating away at household income and ability to pay.
Non-performing mortgages, however, account for 2.44% of the total, higher than in March (2.33%), but contained in historical comparison. It is notably lower than the rate of 6.28% reached at the peak in March 2014. In any case, it is likely to increase in the coming quarters. On the one hand, because of the aforementioned increase in unpaid mortgages. And on the other, because the mortgage balance has been falling since June 2022 due to the drop in new operations and the increase in early repayments caused by the inflationary shock. The bank’s mortgage portfolio has fallen by €13,290 million and 2.7% since then, to €483,224 million euros.
Consumer and corporate
Household consumer loans are also registering an increase in non-performing loans. In the second quarter, the unpaid balance amounted to €4,148 million, an increase of €86 million and 2.11%, in line with the rise between January and March. The total consumer loan portfolio increased by 1.43% to €94,580 million, but as the increase in NPL was higher, the default rate rose to 4.38%. On the other hand, in loans to companies, both the non-performing balance (down by €522 million and 2.3% to €22,391 million) and the rate (from 4.13% to 4.09%) fell.
The data on NPLs by segment are published every three months and with a certain delay, but those on NPLs for total credit are more agile, which gives clues as to what is happening with defaults in the third quarter. In July, the total balance of doubtful bank loans fell by €399 million and 0.94%, to €41,774 million. The weight of defaults on total credit to the private sector, therefore, remained for the second month at 3.5%, the lowest level since December 2008. Bankers and supervisors, in any case, have been warning for some time that the sharp rise in interest rates will sooner or later lead to a rise in defaults, although they assure that it will be moderate and to manageable levels for the sector.
Original Story: El Periodico | Pablo Allendesalazar<
Photo: Photo by Jason Hochman from FreeImages
Edition and translation: Prime Yield