Mortgage foreclosure is an enforcement process through which the sale of a property encumbered by a mortgage is ordered due to the debtor's default on the obligations secured by the mortgage loan. It can have undesirable consequences for those affected, even to the point of losing the property. This process has become widespread during the economic crisis in Spain.
From this central perspective, it's important to consider that mortgage rates will likely rise again in the coming months , according to a survey by the Bank of Spain. The survey reveals that interest rates are at levels last seen in September 2015, after increasing for eight consecutive months. In practice, this means that borrowers will have to make a greater financial effort to purchase a property, and the risk of default will therefore also be higher.
At a time when variable-rate mortgages have seen their interest rates increase by a few tenths of a percentage point compared to previous years, after having been at historic lows for a long time, and with the advantage that monthly payments will be more affordable for your personal needs, we are seeing a rise in fixed-rate mortgages, which maintain the same interest rate throughout the life of the loan. Regardless of what happens in the financial markets, this way we always know what we will have to pay with a loan of this type.
Foreclosures: Solutions
One of the keys to avoiding this unpleasant situation is fulfilling your obligations after taking out a mortgage. In most cases, this is the case, but in others, these payments cannot be met , ultimately leading to foreclosure. To help prevent this, we will provide a series of tips for managing your mortgage correctly so that you don't have to give up on this financial product for any reason.
The first piece of advice is that before applying for this type of mortgage, applicants should analyze their employment situation. Specifically, whether their employment contract is permanent , temporary, or if they are self-employed. In these latter cases, meeting the mortgage terms will be much more difficult. This is because there is no guaranteed income, and the undesirable situation of being unable to make the monthly payments can arise at any time.
Analyze payroll salary
Another aspect to consider from this point forward is income. There's a general rule that mortgage payments shouldn't exceed 50% of your earnings . After all, you'll need to factor in expenses like food, personal costs, car maintenance, household bills, insurance, and so on. From this perspective, it's crucial not to rush into taking out a mortgage. Doing so in the medium and long term can have unpredictable consequences and potentially lead to default on this type of loan.
On the other hand, seniority at the company is another crucial factor in determining whether we will be able to repay the loan. It's not the same for someone who has just started at their company as for someone who has been performing their job duties for over ten years. In this sense, it's very important to have a degree of trust in the company where we have built our career. In any case, it is often one of the factors that can lead to the potential and unwanted default on a mortgage.
Contracting insurance for defaults
One solution to this significant problem is to take out a policy of this type, which guarantees that we can pay it off in the event of an accident or, especially, unemployment . In either case, it won't be free; on the contrary, we'll have to pay a monthly installment until the policy matures. The amount will be calculated based on the outstanding balance and typically doesn't exceed €200 per month. This product is optional for those seeking this type of financing.
This type of insurance is very practical when we lose our job, allowing us to continue making our monthly mortgage payments. In this scenario, it's highly advisable to take it out if our employment situation is uncertain . In any case, it must be purchased by the client themselves, never imposed unconditionally by the bank, as this could constitute an irregularity in their practices.
Longer repayment terms
Another key to avoiding default is choosing shorter repayment periods. While the monthly payments will be higher , they'll be over a shorter period. This way, you'll ultimately pay less in interest, making the mortgage cheaper overall. Furthermore, it's a simple strategy to prevent excessive debt for those taking out this type of loan. It's highly recommended that you consider this aspect before signing the contract.
On the other hand, opting for these shorter repayment terms reduces the likelihood of defaulting on the loan. It will be easier to plan the expenses associated with taking out the mortgage. Consequently, it will be less complicated to avoid paying the principal and its corresponding interest, regardless of the borrower's perspective. It is always more advantageous to choose a 15-year repayment term than one of 30 or 35 years, as the latter can lead to greater problems and certainly create more uncertainty about how to manage the payments until maturity.
Foreclosures
The number of mortgage foreclosure certificates registered in property registries in the last quarter of 2019 was 14.669, representing a 6,4% decrease compared to the previous quarter and a 2,1% increase compared to the same quarter of 2018, according to the latest data provided by the National Institute of Statistics (INE) based on the report "Statistics on Mortgage Foreclosures (EH)." The report also reveals that among the properties owned by individuals subject to foreclosure, 1.490 were primary residences (a 27,4% decrease compared to the same quarter of 2018) and 528 were not the owners' primary residences (a 14,8% decrease).
Foreclosures on residential properties accounted for 50,1% of all foreclosures in the last quarter of 2019. 10,2% of all foreclosures involved primary residences of individuals. 36,3% involved properties owned by legal entities (29,6% higher than in the first quarter of 2018), and 3,6% involved other properties owned by individuals (14,8% lower than in the first quarter of 2019). Foreclosures on other urban properties (commercial premises, garages, offices, storage units, warehouses, buildings intended for residential use, other buildings, and urban development projects) represented 37,5% of the total.
Made on new homes
The report by the National Statistics Institute (INE) shows that 22,9% of mortgage foreclosures in the analyzed period were on new homes and 77,1% on existing homes. The number of foreclosures on new homes increased by 49,2% year-on-year, while those on existing homes increased by 0,1%. Furthermore, 23,1% of the foreclosures initiated on homes in the last quarter correspond to mortgages taken out in 2007, 15,8% to mortgages taken out in 2008, and 13,1% to mortgages taken out in 2006. The period between 2005 and 2008 accounts for 59,9% of the foreclosures initiated this quarter.
The official report also highlights that the regions with the highest number of mortgage foreclosure certificates as a percentage of total properties in the first quarter are Catalonia (3.169), the Valencian Community (2.914), and Andalusia (2.172) . Meanwhile, Navarre (44), the Basque Country (55), and La Rioja (62) have the lowest numbers. Specifically regarding residential properties, Catalonia (1.633), the Valencian Community (1.524), and Andalusia (1.182) have the highest number of foreclosures. Conversely, La Rioja (11), Navarre (21), and the Basque Country (34) have the lowest numbers of residential foreclosures.
Where it is shown that among the homes of individuals with foreclosure, 1.490 are habitual in property (27,4% less than in the same quarter of 2018) and 528 are not habitual residence of the owners (14,8, 59,9% less). Where XNUMX% of the foreclosures started this quarter are concentrated.