In the midst of a wave of concern about the high house price in Spain, the Bank of Spain is studying the possible implementation of measures to legally limit the mortgage granting to the highest risk economic groups, such as youthswhich would increase the price of rentals. Likewise, although the organization recognizes the increase in prices in the market, it assures that there are no indications that suggest a real estate bubble like the one that broke out in 2008.
According to the semi-annual financial stability report of the Bank of Spain, the body directed by José Luis Escrivá is evaluating establishing “borrower based measures“, that is, measures that would limit the granting of mortgages in relation to the buyers’ income or for being higher than the value of the property by a certain percentage. However, as explained David Perez Cidgeneral director of Financial Stability, Regulation and Resolution, these reforms could lead to a decrease in the property rate of homes and delay in their acquisition.
These measures would increase the price of rents and would force young people to reduce their consumption to save.
Although these factors would lower the price of housingwould also cause a rent increase and that young people, a special risk group in this regard, have to reduce their consumption in order to save. For this reason, the Bank of Spain is still studying its implementation. According to Pérez Cid, “the challenge is to achieve a framework rich enough to allow us to assess what the optimal combination to maximize the effectiveness of the measuresaffecting as little as possible issues that we would not want to affect.
The implementation of these measures would be the result of the recommendations given by the International Monetary Fund, although Pérez Cid has assured that the institution is not in a hurry to carry them out. Its main objective is reduce the increase in defaults caused by times of crisis or notable economic changes. Something that would benefit the profitability obtained by the banks that offer mortgages, but that would make access difficult for young people and families with limited resources. To avoid this negative effect, the Bank of Spain is developing a more flexible methodological framework.
Despite the high price of housing, it is 15% below 2008 levels
On the other hand, and to reassure the population, the Director General of Stability wanted to ensure that the organization no signals detected reminiscent of the creation of a new real estate bubble. This is because, although house prices have experienced marked growth, doesn’t come close at the levels recorded during the bubble burst in 2008. According to Pérez Cid, the levels recorded are 15% below of those presented during the previous crisis, which reminds more of the situation in 2004.
Likewise, regarding the Mortgage granting criteriathese would also not be close to those established during the full peak of the previous real estate bubble. To corroborate this, the report presents data from the relationship between the loan and the price of the propertywhich is located in a 81.2%. A figure lower than the 107% reached in 2006; and the figures for the relationship between the loan and household income, which stand at 4.4, compared to 7 in 2006.