This year looks set to be a busy one for the property and banking sectors. The current inflationary context is forcing banks to update and adapt mortgage offers to the new economic scenario. In this context, we are witnessing a redefinition of the commercial strategies of financial sector companies, which are trying to make the most of the changes in monetary policy promoted by the European Central Bank (ECB), the Federal Reserve, and the International Monetary Fund (IMF).
In this sense, the rise in interest rates can become a double-edged sword for banks. On the one hand, there is no denying the positive effect this new scenario offers banks on their interest margins thanks to the increase in the cost of credit linked to the EURIBOR rise. On the other one, it will force the sector to rethink business plans in the mid-term because, despite dynamism when granting new mortgages, the total credit balance is falling.
Let’s get down to business. Why is this happening? The key is those who are writing off outstanding mortgage balances, as this is one of the most common ways to save part of the interest. The downward trend started in the summer as interest rates rose. While the pandemic helped the banking sector strengthen its position in financial credit servicing by offering loans to those companies that had no choice but to leverage up, a drastic drop in mortgage demand would mean that banks would lose one of their most lucrative lines of business.
Why are mortgages so important for banks?
They are long-term loans, considered low to medium risk, which is why the default ratio on mortgage loans is usually lower than that of other types of loans. In addition, mortgages normally require a high level of customer loyalty and continue to be banks’ star products when attracting new customers since they are willing to accept many conditions in order to access mortgage financing and purchase a home.