The extra cost of renegotiating a mortgage is at its highest due to fear of default

Entities perceive a greater risk in renegotiations in an environment of increasing defaults and this has caused the price of this type of operations to skyrocket. According to statistics from the Bank of Spain, the TEDR interest rate (which excludes expenses such as commissions or insurance premiums) approached the 5% level in October, standing at 4.72%, which is 13 basis points higher. than in September, and almost one percentage point compared to the rates applied on new mortgages: a record distance.

It is precisely the circumstance that the interest rate applied in the renegotiations is the highest in the entire historical series, which began in 2014. Before the rate increase carried out by the European Central Bank (ECB), the ceiling was situated at 2.84% in June 2014. Likewise, it is also the largest difference recorded between the rate applied by banks to new loans and that of renegotiations, since the price of new operations closed in the tenth month of the year at 3.78%.

Thus, while this last rate has remained practically stable in the last three months (in August it rose to 3.79% after rising from 3.71% in July), the price applied in renegotiations by banks has continued the upward trend. since from July to August the increase has been almost 50 basis points, and from August to September, when the gap began to be shown more clearly, 74 basis points. It has now closed the gap to 93 basis points.

In fact, from September 2022 until well into this year, the rates applied in the new renegotiations were lower than those of the new mortgages, with differences ranging from 6 basis points to 25 points in March of this year, somewhat . which, in general terms, had been repeated throughout the entire historical series.

Although this price is the highest in the series, those mortgaged with the greatest problems due to the rise in the Euribor have increased the total import of new operations. In the first ten months of the year, renegotiations occurred for a total volume of 3,769 million euros, which represents an increase of 210% compared to the 1,185 million euros registered in the same period of 2022, which reveals that the increase in types are affecting vulnerable households to a greater or lesser extent and they are looking for solutions before going into default.

This increase in the number of operations also coincides with a significant increase in mortgage payments as a result of the increase in the Euribor, the reference index for variable rate loans. We must not forget that in August of last year, the indicator closed at 1,249%, which is 282 basis points less compared to the close of this August, when the Euribor stood at 4,073%. Compared to October, the difference is 153 basis points more, since the index ended at 4.1%.

Delinquency monitoring

This extra cost occurs at the same time that the supervisors of the financial sector have demanded that the banks tighten their surveillance of a default rate that has not yet arrived despite the fact that they predicted that the increase in interest rates, which have gone from 0% in June of last year to close at 4.50% in November of this year. What’s more, for this reason they have asked the sector to be prudent and use the good results to increase provisions.

And these loans that have had to be refinanced fall within the banks’ ‘stage 2’ classification, which are those that are classified as doubtful even though they have not defaulted, but the bank already sees a certain deterioration precisely because they have to refinance. From the sector they point out that it would not be included in this section if the renegotiation would allow improving the financing conditions with which they started.

As of September, according to the financial reports published by the main banking entities listed within the Ibex 35, the loans included in stage 2 will increase by just over 4,000 million between June and September to a total of 161,350 million euros. Banco Santander and Caixabank, followed by BBVA, were the entities that saw this item grow the most, while Banco Sabadell and Unicaja Banco recorded falls.