Mortgage prepayment: An alternative to saving
Fecha: noviembre 2023
Marta Alberni, Ángel Berges and María Rodríguez
Mortgage prepayment
SEFO, Spanish and International Economic & Financial Outlook, V. 12 N.º 6 (November 2023)
After 18 months of rate tightening, marked by an accumulated increase of over 4pp, the increases have by now been passed through to virtually all mortgages taken out at floating rates (two-thirds of the total stock of mortgages).That pass-through, which has been gradual but very consistent (in line with the contractually stipulated repricing schedules), contrasts with the slower pace of deposit repricing. Against this backdrop of high borrowing costs and relatively lower returns on savings, the prepayment of borrowings, especially those more affected by the rate increases, such as floating-rate mortgages, has emerged as a clear alternative to investing savings. Considering the longrun stability around monthly mortgage cancellations of approximately 26,000, we can infer that the incremental number of cancellations attributable to the increase in rates between June 2022 and June 2023 was around 6,000-7,000/month, which would put the cumulative number of mortgages prepaid during that period at somewhere between 75,000 and 85,000. As well, the weight of early redemptions can be estimated as ranging between 2-3% of the outstanding balance, representing approximately 9-14 billion euros. Indeed, these estimates suggest that early cancellations are in the order of magnitude of around half of the amount invested in Treasury bills and mutual funds in the first half of the year, which too are on the rise, thus underlining the increasing preferences of savers to reduce outstanding debts.