The European Central Bank’s (ECB’s) recent interest rate increases are pushing Spain’s homeowners toward default, the Financial Times reported.
Three-quarters of Spain’s home buyers take out adjustable rate mortgages, according to the Bank of Spain, the central bank. Since the ECB began hiking its key rate this summer, in many cases monthly payments have risen by a third or more.
Many mortgages were taken when the ECB’s base rate was -0.50 percent; the country’s average mortgage rate is tied to banks’ overnight interbank lending rate, which is now 2.6 percent.
The specter of widespread foreclosures has awakened memories of the 2007 financial crisis, when hundreds of thousands of people were evicted from their homes, the economy crashed, and people lost trust in the banking system.
The ECB has bumped its rate by two percentage points so far and is widely expected to add another half-point next month.
Another 0.50 percent added to the ECB’s rate would boost Spain’s average monthly mortgage payment by €200 to about €850, the FT calculated.
However, Spain’s central bank believes only 3.9 percent of all consumer debt accounts are at risk, compared to 13.6 percent in 2013.
“The wolf is coming but it’s not here yet,” Laura Barrio, an official with Coordinadora de Vivienda, a housing service agency.
TREND FORECAST: As with Italy and Sweden, in Spain people will vote for anti-establishment, anti-immigration populist parties. And as European nations continue to send money and armaments to Ukraine to fight the Russians—while EU economies get wracked by Dragflation—this too will increase populist party strength with calls to keep the money at home rather than sending it to fight someone else’s war.