The governor of the Bank of Spain warns of the risk of delaying mortgage payments too

Recommended reading of the article: Should lengthen the term of the mortgage?

The Bank of Spain governor Jaime Caruana, yesterday warned of the risks of mortgages that adopt modalities "creative" to defer payments of principal or extend the life of them. Caruana said that the growth of the Spanish economy this year will be "slightly below" that recorded in 2005 and opted for a "gradual and orderly reduction" of the current overvaluation of house prices. The Bank of Spain confirmed yesterday that the Euribor stood in March 3105%, its highest level since October 2002.

Jaime Caruana reiterated yesterday, during his speech at the Forum Five Days, the "concern" that the Bank of Spain has been saying since late last year by offering mortgages with little traditional characteristics. For example, those that have a long-term depreciation of some banks offer up to 50 years-or granted grace periods, are paid only the interest-up to ten years.

Caruana warned entities to provide more information to customers about these products because "some families may find themselves with major surprises" in case there is rising rates too much or lengthening the life of their mortgages.

The governor of the Bank of Spain recalled that the level of indebtedness of households has grown in a few years to amount to 110% of disposable income. This pace of growth, he said, is not sustainable "so long." Moreover, he warned that the types of mortgages are not going to stay as low as at present and that households more vulnerable to price increases will be most indebted, "which often coincide with those of lower income levels and greater propensity to spending. "

The Bank of Spain confirmed yesterday that the Euribor, the benchmark for setting mortgage rates, reached in March 3105% 2914% compared to February, its highest level since October 2002. In the last twelve months, has risen seven tenths.

Caruana said that the families will be in "perfect condition" to meet its commitments, provided it does not deteriorate the employment situation. As for the price of housing, said that the latest official figures already show a slowdown in the pace of growth. If this trend takes hold in coming quarters, he said, the scene of price adjustment will be that of a "gradual correction of the overvalued today."

Written by Carlos Lopez on April 19, 2006 with 3 comments
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