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Home Loans Drop To Lowest Level Since 2006

3 November 2015 – Cinco Días

In November 2008, after fifteen years of continuous growth, the debt held by households peaked at more than €912,000 million. As the economic crisis hit, unemployment rose and wages were devalued, families began to get rid of those liabilities as they tried to rebuild their accounts. And according to statistics from the Bank of Spain, it seems that the process is not over yet. In September, total household debt decreased again to reach its lowest level since 2006 – €728,747 million. The difference between these two figures represents a decrease of €185,000 million.

The collapse of the mortgage market has played a decisive role in this deleveraging process, with mortgages representing more than two thirds of household debt. In November 2008, loans taken out to purchase homes amounted to almost €680,000 million and in the seven years since then, that figure has decreased by 16.5% to reach €567,000 million. A difference of €112,000 million and suggesting the weight of housing in the process to reduce household debt: six out of every ten euros relating to the reduction of household liabilities have corresponded to loans linked to house purchases.

The overall picture of debt in the three major sectors (companies, households and public administrations) shows divergent trends. In November 2008, the figure amounted to €2.6 billion, of which €1.25 billion (48.7%) was in the hands of companies, encouraged by the tax benefits to take out debt and by the facilities that the banks offered on their loans. They were followed by households, with €913,000 million (35.4% of the total), and then public administrations, with €405,740 million (15.7% of the total). By September 2015, the figures and percentages had changed significantly. Now the public sector holds most of the total debt figure (€2.7 billion). In August (the latest available data), public administrations held debt amounting to €1,050,000 million (38.8%), followed by companies, with €927,000 million (34.2%) and households, with €729,000 million (27%).

The two main findings to be drawn from the analysis of this data are that public debt has tripled in both percentage and relative terms, and the speed of the adjustment has been much greater for companies than for families. Company liabilities have decreased by €330,000 million in seven years, which means that its weight over the total Spanish debt has decreased by 14 points in the same period.

Original story: Cinco Días (by Carlos Molina)

Translation: Carmel Drake