The mortgage market has turned around right with the arrival of coronavirus. For the first time, mortgage customers opt for a greater proportion of fixed rates than variable ones. The strong competition that banks have long maintained to attract customers to this type of mortgage, more profitable for the sector in times of low interest rates, has ended by breaking the historical hegemony of variable mortgages. In March, when the activity was conditioned by the declaration of the state of alarm by the pandemic, the 53% of mortgage operations were closed at a fixed rate, compared to 47% contracted at a variable rate, according to Statistics data.
This record coincided with the lowest fixed prices in the historical series, when the average interest at the beginning of the loan stood at 2.92%, when four years ago it exceeded 4%. Fixed mortgages have never been so cheap and prices are already very similar to variable mortgages, with an average interest rate of 2.21%. In the market it is possible to find aggressive fixed rate offers that do not exceed 1.50% APR.
In the market you can find fixed rate loans of 1.50% APR for 15 years
Experts agree that some banks prioritize the commercialization of fixed mortgages. “In the current environment, with a negative Euribor, there is more incentive to place more emphasis on fixed mortgages,” says Nuria Álvarez, analyst at Renta 4, who believes that the March data may be “distorted” by the paralysis of many operations and that the evolution of mortgages in the coming months “may vary depending on the economic outlook.” However, he insists that “the strategy of the financial institution plays a very important role.”
Almost all banks offer fixed and variable loans and ensure that the client chooses what is best for him according to his profile, but some do not hesitate to promote the fixed option, as in CaixaBank. Sources of the entity maintain that the data for March is “positive, although we have to wait a few months to see if this trend continues.”
In MyInvestor highlight its advantages. “We believe that this product is favorable both for the client and for the entities. With the fixed mortgage, the effort rate, which is the percentage of income that the client spends to pay the mortgage, is stable. “In addition, it allows entities to have greater visibility of their income and, also, prevents a potential rebound in rates from leading to an increase in default if customers had problems facing a higher share.”
Many experts also see it as the best option to avoid startles, despite the fact that, today, you pay more than with the variable. “Without a doubt, it is the best way to protect yourself in the future from any movement of the Euribor and it allows financial planning without scares ”, says Fernando Encinar, head of studies at Idealista. From the financial portal HelpMyCash they maintain that the fixed interest is recommended for the most prudent profiles, with risk aversion. Although the Euribor is expected to remain low for a long time since, despite recent rebounds, it remains in the low zone and there is no prospect of any rate hike.
Banks and experts highlight the shield against a rise in the Euribor index
In March, many of the ongoing mortgage operations remained in standby due to the coronavirus and the break is expected to be reflected even more in the April data. Juan Villén, mortgage expert at Idealista, believes that banks will continue to bet on fixed rates and will further lower prices as demand reactivates. “With the underlying uncertainty, banks want to do business and to lend more they have to compete with each other, which puts downward pressure on prices,” he highlights.
In recent weeks, with Spain in full de-escalation, there have been no major movements in the bank offers and at the moment they remain stable. Both in fixed and variable mortgages you can find very attractive prices. According to the latest data from the Spanish Mortgage Association (AHE), the average rate of mortgage loans for more than three years for the purchase of housing granted by entities adds three consecutive months to the drop and has reached the minimum of 1.754% in April.
The director of mortgages of iAhorro, Simone Colombelli, believes, for his part, that the Euribor will continue to rise, “so choose a fixed mortgage in cases in which you seek more security and tranquility and for loans of 30 or 40 years It can be a good option ”, he highlights.
At 15 years, MyInvestor offers some of the most competitive fixed rates, at 1.49% APR, while at 25 years it is 1.88%. At Openbank, the fixed interest is 1.65% at 15 years and 1.84% APR up to 30 years. Ibercaja markets 1.73% APR for 20 years and BBVA, 2.20% APR for 15 years, which drops to 1.20% during the first six months. In BBVA point out that the new production at a fixed rate is at levels above the latest INE data. Sources of Bankia, which has a fixed rate from 2.16% 30-year APR, comment that “for a long time”, before Covid-19, more mortgages were taken at a fixed rate than a variable one.