Mortgages in Spain: support measures introduced for over 1 million Spanish households

Spain's most recent Royal Decree-Law to alleviate the mortgage burden of more than one million vulnerable families or those at risk of vulnerability due to the rise in the Euribor came into force on 24th November following its publication Spain's Official State Gazette (BOE). 

This package of mortgage support measures in Spain is the result of negotiations between the Government, the banking associations (AEB, CECA and UNACC) and the Bank of Spain, and its aim is to effectively reduce the mortgage burden on households and provide them with more certainty in their medium and long-term spending levels, allowing them to choose the measure that best suits their needs and financial situation.

"The measures will benefit more than one million households, approximately one third of households with variable-rate mortgages in Spain. They provide a 'menu of options' so that families can opt for the one that best suits their particular case and do not pose a risk or macroeconomic impact. Fortunately, the scenario is very different to 2007 and households are in a healthier position than at other times in our history," said Nadia Calviño, First Vice-President of the Government and Minister for Economic Affairs and Digital Transformation, at a press conference following the Council of Ministers.

Specifically, Spain's mortgage support regulation acts in three ways: improving the treatment of vulnerable households, opening a new framework for temporary action for families at risk of vulnerability due to the rise in interest rates and adopting general improvements to facilitate the early repayment of loans and the conversion of mortgages to those with fixed interest rates. Note that these mortgage support measures in Spain are for any mortgage holder that meets the criteria, whether they are Spanish or foreigners. These are the main measures and requirements:

Aid for vulnerable mortgage holders in Spain

Households in Spain with an income of less than 25,200 euros a year, i.e. with an income of up to three times the IPREM (an index reference in Spain for the granting of economic aids, grants, allowances, unemployment benefits, and minimum wage), are considered as such. And the second characteristic is that they devote more than 50% of their monthly income to mortgage payments. The government estimates that there are some 300,000 households that meet these criteria.

There are two scenarios to which different measures apply:

1. If their mortgage effort rate has increased by more than 50%, households will be able to restructure their mortgage loan with a reduction in the interest rate during the 5-year grace period (to Euribor -0.10%, from the current Euribor +0.25). Likewise, the period for requesting "dación en pago" of the property will be extended to two years and the possibility of a second restructuring, if necessary, is envisaged. A new application period for renting in the event of foreclosure of the main residence is also established.
2. If their mortgage effort has increased by less than 50%, they will be able to opt for a 2-year grace period, a lower interest rate during the grace period and an extension of the term of up to 7 years.

"This measure is necessary for those households who, as a result of the rise in interest rates, reach excessive levels of mortgage effort that force them to reduce basic expenses and endanger the payment of the mortgage, can receive appropriate treatment," the Spanish Ministry of Finance states.

Aid for mortgage holders at risk of vulnerability

On the other hand, the regulatory package opens up the Good Governance Code so that middle-class debtors at risk of vulnerability can also benefit from the aid measures. Specifically, households with an income of less than 29,400 euros per year (three and a half times the IPREM) and mortgages taken out until 31st December 2022 that have a mortgage burden of more than 30% of their income and which has risen by at least 20%.

Financial institutions must offer all these cases the possibility of a 12-month freeze on repayments, a lower interest rate on the deferred principal also for 12 months and an extension of the loan term of up to 7 years.

Mortgage repayment with no frees and changes from variable to fixed rates

Throughout 2023, early repayment fees for Spanish mortgages have ben eliminated. In other words, mortgagors will be able to reduce the outstanding capital without having to pay a fee for this, as is often the case. On the other hand, during the next year there will also be no fees for converting a variable mortgage to a fixed-rate one.

Measures for the promotion of financial education will also be included and the monitoring of the application of both codes will be reinforced. The Government has also approved a permanent reduction in the cost of converting from a variable to a fixed rate and has commissioned the Bank of Spain to draw up a guide for mortgage debtors in difficulties, with the aim of increasing transparency.

Practical examples of how to reduce mortgage repayments

A standard mortgage of 120,000 euros constituted at the beginning of 2018 with a standard rate of Euribor +1% for a term of 30 years would have paid an instalment of around 360 euros in 2022, which at the beginning of 2023 would have shot up to 525 euros (45%).

For a vulnerable household under the Code of Good Practice, the final instalment would be 240 euros, i.e. 33% less than in 2022 and 54% less than without the approved measures. For a vulnerable household that does not meet the requirement of having its mortgage effort increased by 50%, the payment would be 305 euros, i.e. 42% less than in 2022 and 54% less than without the approved measures. For the middle classes, the quota would be 362 euros in the first year of freezing, which means a reduction of 31%.