Spain’s banks seek to extend mortgage lifespans for vulnerable households

Spanish lenders are open to extending loan repayments for up to five years for vulnerable households that experience a rise of at least 30% in variable mortgage costs, a draft of the proposal seen by Reuters on Thursday showed.

Three sources with knowledge of the matter had said on Wednesday some details of the plan, which is part of a wider set of measures aimed at helping struggling families cope with higher interest rates and rising cost of living that banks are discussing with the government.

The loans which qualify in the plan have to account for at least 40% of the family’s income, once taking into account the rise in interest rates, the proposal showed.

Economy Minister Nadia Calvino said she welcomed the banks’ initiative “to minimize the negative impact and alleviate the situation and finances of families in our country in a context of intense monetary policy change”.

Banks would not have to automatically set aside provisions as a consequence of the loan extensions, according to the draft.

“Households earning not more than 24,300 euros a year would be eligible to extend the lifespan of mortgage repayments,” one of the sources said on Wednesday.

It was not clear how many may apply for such a measures but Patricia Suarez, the head of the consumer association Asufin, said that few people will qualify at that income threshold.

The proposal put forward by banking associations to the Spanish government would be applied to variable rate mortgages signed from January 2012 onwards to finance first-home purchases, the draft showed.

Once the extension of the mortgage term to final maturity has been agreed, the outstanding loan would continue to be repaid in new instalments, according to the draft.

The loan would also continue to accrue interest at the appropriate rate.

The instalments resulting from loan renewals would not be lower than the ones existing prior to the revision of the variable interest rate and the repayment period may not exceed 40 years from the date the loan was initially granted.

“As it stands with this proposal, you may even end up paying more interest in the long term”, Suarez said.

The measures, which would be introduced in an amended industry-wide code of good practice, would also allow for lower costs arising from notary and registry fees and mortgage renewals.

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