Sunday, 19 May 2024
BusinessICO Guarantees: A “debt trap” that perpetuates crazy housing prices?

ICO Guarantees: A “debt trap” that perpetuates crazy housing prices?

Mortgages backed by the Official Credit Institute (ICO) are an attractive option for young people who do not have much savings, since they allow them to purchase a home with a lower initial contribution. However, it is noted that, In the long term, these mortgages can be more expensive due to the 20% covered by the public guarantee. Requesting this guarantee may result in higher monthly payments and a greater total interest payment over the course of the loan.

That is, it can influence the total cost of the loan, even though it does not entail a direct expense for the consumer. According to Kelisto’s analysis, the difference could be significant, reaching up to 25% more compared to a mortgage without collateral. Furthermore, as the mortgaged party, they will have to pay 100% of the money borrowed, which would significantly increase annual costs. If the interest is calculated on the total value of the home.

However, it is not yet known how the banks will proceed, but with the downward evolution of the interest rate curve and less contracting of mortgages, financial institutions are offering alternatives to attract new clients. For example, Ibercaja will reduce the fixed and mixed interest rates of its Vamos mortgages.

The unions have already expressed their disagreement with this initiative because they believe that they are “debt traps” and that help maintain high housing prices, leaving mortgage seekers in debt for life. However, sources consulted at the ministry indicate that these types of statements are based on the assumption that the banks are going to “take advantage.” Even so, the executive is already anticipating this possible consequence and is studying evaluation and review mechanisms so that banks do not implement increases.

England as a paradigm

According to evidence from countries such as England, where similar initiatives have contributed to inflating housing prices, this measure will lead to a greater long-term outlay for beneficiaries. In fact, the program “Help to Buy” implemented in England in 2013which allowed families with fewer resources to obtain mortgage loans guaranteed by the State, has made it easier for 340,000 families to purchase homes, it has also inflated real estate prices.

Likewise, the British House of Lords has corroborated that the country’s aid plan has caused prices to purchase homes to increase, also generating price inflation that exceeds the value of the aid, especially in areas with high demand. where the aid has been transferred directly to the price of housing.

CCOO has stated that other measures could have been those that promote the mobilization of empty housing, the construction of officially protected housing (VPO) or assessed price, and the limitation of rental prices, so that young people only have to allocate a maximum of 30% of your income to pay a mortgage or rent.

Payment defaults

On the other hand, in the event of default on the mortgage payment, the repercussions also vary. During the first 10 years of the loan, the State would assume 20% of the guaranteed amount, while the rest of the debt would continue to be the responsibility of the borrower. However, once this period has elapsed, the borrower would be responsible for the entire debt to the bank, since the ICO guarantee would lose its validity. It is essential to understand these implications before deciding on a mortgage backed by the ICO guarantee

In addition to this line of guarantees, the executive is working on measures to control the price of rents in stressed areas, with the creation of reference indices inspired by the policies implemented by Catalonia.

However, it is also worth noting that some banks already offered financial products for young people. Banco Santander, Bankinter, Unicaja, KutxaBank and Ibercaja, among others, have mortgages specifically designed for those under 35 years of age with greater financing, which can even reach 100% of the value of the property, fewer commissions and lower interest rates compared with traditional mortgages.


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