The Bank of Spain cools the urgency in limiting mortgage lending despite price increases

MadridMortgage lending continues to circulate – in fact, some financial institutions have warned that it is doing so unsustainably – while housing prices rise month after month. In this context, some are already noticing a difficulty in buying: households where the main residence is rented have a "limited financial capacity" to acquire a first property through a mortgage, according to the Bank of Spain. Be that as it may, the scenario shows no signs of concern in the opinion of the supervisory body, which for some months has been analyzing whether to activate any limitations on the lending criteria for high-risk mortgages that are being granted.

"We do not have a sense of urgency regarding the application of measures. But we do have one regarding continuing to work," reflected David Pérez Cid, Director General of Financial Stability, Regulation and Resolution at the Bank of Spain, this Thursday during the presentation of the Financial Stability Report of spring.

In November of last year, the entity chaired by José Luís Escrivá opened the door to setting limits on the lending criteria for some mortgages to avoid a real estate bubble. The ultimate goal would be to prevent over-indebtedness of families, especially the most vulnerable, and to weaken their payment capacity. For the moment, the supervisory body believes that the current expansion of real estate credit continues to be "compatible" with households maintaining a low level of indebtedness.

During this time, the Bank of Spain has advanced in its analysis, but not to the point of deciding whether to activate possible measures or not. "We are defining whether the measures are effective from the point of view of providing more resilience to households and banking entities [...] but also whether they may have [negative] effects in other dimensions," Pérez reflected. The Bank of Spain acknowledges that limiting lending criteria reduces the risk of mortgage credit, but it does not want, for example, it to affect the rental market by further straining prices or to reduce the consumption of young households because they decide to save to be able to buy later. In fact, one of the conclusions reached is that a limitation could reduce the number of homeowners.

Rules out a bubble

"When we talk about a real estate bubble, it is characterized by elements that we do not see today: very high demand [for credit] and deteriorating mortgage origination standards," added the Bank of Spain executive. In fact, the Bank of Spain report notes that, although mortgage credit origination criteria have relaxed slightly, they remain well below their historical highs. "Overall, real estate risks to financial stability are contained," concludes the document, which analyzes precisely the factors that could destabilize the banking sector and, consequently, the economy.

In this regard, the institution points out that the conflict in the Middle East following the attack by the United States and Israel on Iran is the main risk to financial stability. At the same time, it has warned of the high level of public debt in the State, which exceeds 100% of gross domestic product (GDP).