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Spanish government plans to facilitate changing to fixed mortgages

Steep cancellation charges currently deter potential movers away from variable rate loans

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In the light of the growing popularity among house buyers in Spain of fixed-rate mortgage loans, national government has announced that it is drawing up plans to make it easier for those who are currently repaying variable-rate loans to switched to fixed payment terms whenever they wish.

The attractiveness of fixed rate loans has come about as a consequence of the current low interest rates, but it is generally expected that the Euribor rate on which most Spanish mortgage repayments are calculated will begin to rise again within twelve months. For this reason there are many owners who could be interested in switching to fixed-rate terms in order to lock into lower rates while they last, the only off-putting factor at present being the high penalty charges incurred by cancelling one set of conditions and instigating another with a different bank.

Luis de Guindos, the Minister for the Economy, explained that the plans his department is drawing up include the elimination of these cancellation costs and substantial reductions in the expense implied by registering new terms before a notary and at the property registration office.

The details have not been finalized yet, but the information given by Sr de Guindos in Malaga met with a rapid response from the banks, who welcomed the news but, predictably, with some caution. It is important to remember that the fixed rate offered by banks on mortgage loans is always higher than the current variable rate, as banks seek to protect their long-term revenue and minimize risk, and that they will not relish engaging in price wars in order to keep customers.

Fixed rate mortgages were not popular in Spain for many years, generally representing under 10% of all loans extended, but at present they account for around a third of all agreements reached due to the current low level of Euribor, which at the end of June stood at -0.149%.

Source: Spain News Today, July 2017

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