The mortgage reform prepared by the Ministry of Economy hides a huge novelty. The department headed by Luis de Guindos intends that the Spaniards should not be able to get into debt when buying their main residence for a period of time exceeding the end of their working life. 65 years, retirement age in Spain (from 2027, it will be 67 years) will be the impassable border in mortgage loans, so as to end the excess indebtness of citizens, after the excesses in the real estate boom.
This governmental reform which will modify the Law regulating the mortgage market will add a paragraph to article 5, stipulating that “the repayment period of the loan or the credit guaranteed by a property, when financing the acquisition or restoration of a usual residence, will not exceed the legal retirement age of the debtor”.
The Government has not yet decided to apply this “proposal”, which it considers “important”, as it thinks that it should be “evaluated carefully, in view of the potential effects it could have on the access to properties of citizens with less accumulated savings”, (…).
This is a petition which lends a hand to PSOE, who in its proposal of reform of the mortgage law demanded that mortgages should have a repayment period longer than 30 years. It is important that the last installment should not exceed the retirement age and the income decreases.
The vice-president of the government already pointed out last November that one of the main objectives of the government was to “establish credit limits to usual residences acquisitions so as to avoid an excess indebtness.
The average repayment period for mortgages is currently 23,3 years, according to the Bank of Spain. This shows that there are a high percentage of loans with a longer duration than 30 years, even though there are no official records.
But during the real estate bubble there were plenty of mortgages with repayment periods of 40 and 45 years with the average period nearing 30 years. “It has been observed that the delays in payment are more frequent when the repayment periods are longer”, Julio Rodriguez, former president of Banco Hipotecario, points out.
“ I think that limiting the repayment period of mortgages to the retirement age would be reasonable, as it seems normal that the loan is referred to the active life of the borrower, as after retirement the income decreases substancially”, Rodriguez adds.
But could this measure – if applied – affect those citizens who decide to buy a property when nearing their retirement age? “No, because right now banks are not lending at 30 years to someone over 40 years of age, but at a number of years similar to the active life remaining to that person”, Rodriguez adds.