Will we see a mortgage rate war in Mexico in late 2020 and creativity in new products?
There is no doubt that the situation in Mexico is very complex due to the economic downturn self - inflicted by the administration of President Lopez Obrador and economic pause generated by the COVID 19. pandemic Many are the voices that cast doubt on the future of the real estate sector linked to housing in the country; However, today more than ever it is relevant to remember that there is a real demand for housing, unmet for more than 10 years, in all socioeconomic sectors, in practically the entire country; And because of this, the housing sector with its qualities of innovation, entrepreneurship, but above all, its enormous resilience will recover relatively quickly in an effective way.
Fortunately, the banks have been generating in a continuous, responsible and dynamic way mortgage loans for house purchase for more than 17 years, which are detonators of the housing industry in Mexico in all its segments. Thinking about the new housing business today, without the collaboration of the banks, would be impossible, because on average they already represent more than 40% of the sale and purchase transactions with a similar participation in second-use housing.
Although, it is true that the benchmark rate of Banco de México at the time of writing this article is at 5% and surely by the date of publication it is already at 4.5% I do not see yet a 'mortgage credit rate war'. What we are seeing are downward rate adjustments, only for certain very specific products, designed for 'AAA' customer profiles, whom banks want to attract and who are requested in several cases to contract additional products that are relatively easy to fulfill. .
In general terms, we can say that the interest rates for 'normal' clients for a 15-year loan with a capacity of 80% of the purchase price are in the range of 9% to 10%, depending on the institution and the Rates for 'AAA' clients are in the order of 7.75% to 9%, which does not mean that there really is a 'rate war' that generates a huge appetite from potential home buyers.
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In my opinion, we will see a 'rate war' between the banks, in order to attract the interest of new clients in the fourth quarter of 2020, this once the Bank of Mexico has reduced its interest rate to 4.5% , the cost of funding is adjusted, the effects of Covid-19 begin to diminish and the economic decline bottoms out.
The 'rate war' will be driven by the evident decline in new loan applications that banks have begun to experience since March 2020 and has been deepening since then.
Although, the placement of bank mortgage credit in the first quarter of 2020 grew 3.5%, this was largely generated by operations that were in process since the end of 2019 and January 2020, with average loans of just over one million 500 thousand. The figures presented by the Association of Banks of Mexico to April 2020, already reflect a significant drop of 11.5%, while the internal figures of the banks showed more delicate numbers in the months of May and June. All this, in my opinion, does not express a crisis as such, it is rather the 'great pause' that we are experiencing due to Covid-19 and the self-inflicted economic recession by the López Obrador administration, from which we will have a recovery extremely leisurely.
Fernando Soto-Hay Pintado, Founder
and CEO of Tu Hipoteca Fácil
In various forums I have been sharing that, I believe that banks in Mexico, in addition to a rate adjustment through an imminent "rate war" for all their clients, not only the 'AAA', have an extraordinary opportunity to launch the market. For the first time, there will be innovative products for 30 years, in which there are very low monthly payments, income requirements lower than the 15 and 20-year terms and marginal capital amortizations. With the peculiarity that they can be converted into loans for 15 or 20 years, adjusting the monthly payment and the amortization of capital, precisely from year 6 or 7 so that potential buyers are 'encouraged' to buy their houses or apartments and thus the real estate market is reactivated more effectively, driven by this great engine that are mortgage loans.