by Josep Maria Reichardt From one part of the planet to another, the real estate sector is going to be subjected to sudden shocks in the coming months. Property and real estate are going to be subject to market fluctuations due to the hangover from the 2008 subprime crisis, which during these years has been hidden by the huge amounts of money that central banks have injected into the financial system to alleviate the effects of the COVID-19 pandemic and subsequent war in Ukraine.
But as is well known, when money is artificially injected into a system without this increase in liquid assets in the hands of the public being accompanied or motivated by economic growth, inflation occurs. As we will see later, one of the effects of inflation is the breach of property and real estate contracts, for example, deposit contracts, non-payment of mortgages, rental contracts, foreclosures, and other conflicts that undoubtedly require the assistance of a lawyer. .
We can give two references of lawyers in Spain and Colombia that can help resolve your conflicts with property and real estate: We have a real estate lawyer in Valencia and an office of real estate lawyers in Bogota to deal with this type of breach of real estate contracts.
Inflation is the disease of the capitalist system that once it has been triggered, it becomes entrenched in the system and it is very difficult to control it again. The only tool available to the central banks (European Central Bank, Federal Reserve, Bank of England, Bank of Tokyo, etc.) is the rise in interest rates. By raising the interest rates at which central banks lend money to commercial banks, they must raise the prices of consumer loans and mortgage loans, and there is the perfect storm that is going to affect the real estate sector.
The fee paid by a debtor who has been granted a variable interest mortgage loan is made up of a constant amount over a period of time, for example six months or a year, which is made up of principal and interest. These interests are calculated by the sum of a base and a differential. Normally, the base in Europe is the one-year Euribor, the spread depends on the characteristics of the debtor and their ability to negotiate with the bank, but it can be between something less than 0% and up to 5% or more.
Every time the mortgage installment must be renewed, the value is recalculated based on the current price of the Euribor, and if it has increased the installment will rise, in an average mortgage, in Spain, with the current increases in the Euribor the installment may have increased from just over €100 to over €300.
In effect, if the prices of variable interest mortgages rise, some debtors among those who are already mortgaged may be forced to sell their houses because they cannot pay. In other words, there may be an increase in the supply of real estate. Obviously, if the debtor had contracted a mortgage at a fixed interest rate, it will not be affected.
On the other hand, if someone was thinking of buying a home, with the current rise in interest rates, they will have to think twice because they may not have enough solvency now for the bank to lend them the money. You will also not be able to resort to a mortgage at a fixed interest rate because these have also risen because the banks do not want to risk lending money for less than what it is going to cost them, and in an environment of rising Euribor they have to calculate what price are they going to grant a fixed-rate mortgage, and a 20-year term, that covers the average cost of the Euribor that they foresee for these 20 years plus the commercial margin that they want to earn. In other words, it is likely that there will be an excess supply also due to inhibition of demand.
