(Bloomberg) — Spain announced a series of steps to shield mortgage-holders on lower incomes from rising costs, stepping up efforts to cushion the economic blow from high inflation and surging interest rates.
Ministers will approve measures helping more than 1 million households later on Tuesday with agreement on final details with banks still pending, according to an economy ministry statement.
Rising interest rates have put an end to a decade-long boom for the real estate sector across Europe, and concerns are growing that the strain could spill over to the wider economy. In Sweden, authorities have warned that property debt could pose a threat to the country’s financial stability, while Poland declared a mortgage moratorium to provide relief to hard-hit home owners.
Mortgages are a pressure point for the economy in Spain where about 70% of loans for home purchases vary in lockstep with changes in interest rates. The main 12-month Euribor reference rate has jumped to more than 2.6% from minus 0.5% a year ago after the European Central Bank embarked on its drive to tamp down on record-high rates of inflation.
Here are some of the main proposals:
- Lower interest rates during the five-year grace period for vulnerable families earning less that €25,200 ($25,838), while also allowing them to carry out a second debt restructuring
- Allow households access to a two-year grace period, with a more favorable rate during that time and extension of up to seven years of the loan term
- Permit middle-class households with an income below €29,400 a year to freeze monthly payments and extend period of amortization by up to seven years
The new package is another example of Prime Minister Pedro Sanchez’s willingness to intervene in economic affairs as surging living costs pile on the financial pain for Spaniards.
The Socialist-led coalition Sanchez leads has been at the forefront of some of the most radical economic policies seen this year in Western Europe, imposing windfall taxes on energy firms and banks, capping the price of gas used for power generation and limiting rental price increases.
Sanchez has said big business should contribute to funding the €35 billion price-tag of the economic relief measures, an amount that’s equivalent to about 2.5% of the country’s economy.
The European Central Bank warned earlier this month in a non-binding opinion that the tax on banks could hurt lenders that are not booking higher profits from rising interest rates and distort competition in the industry.