Young mortgages specialized in mortgage loans that had an extensive presence just over a decade ago. Currently, as such we hardly find young mortgages marketed, let’s discover the reasons for this change.
We must say that even today we are going to find mortgages that are marketed aimed at young people. Although they do not abound, they do exist. In general, these are very similar mortgage loans to a standard variable-rate mortgage, except for differences related to the contracting age, which may have maximum limits and some small bonuses.
At present, and unlike when the young mortgage was marketed as a specialized product, these discounts are low. Generally, they have more to do with the option of accessing small periods of diverse interest, or short grace periods. Bonuses are spreads are much rare although they can occur.
A brief review of the mortgages offered by financial institutions will, in any case, make us see how, unlike a little over a decade ago, young mortgages are hardly marketed as such. It must be borne in mind that we are talking about a type of mortgage that, at times of increased subscription of mortgage capital one loans, had a significant presence in the market, encouraging young people to purchase their first home. All this is within the framework of a differentiated product, with more advantageous bonuses than traditional mortgages.
Obviously, young mortgages did not overcome the onslaught of the crisis either, and tens of thousands of these mortgage loans became part of the enormous number of delinquent mortgages of the last decade in our country.
How were the young mortgages
We must start by saying that no single type of young mortgage will be offered in the past. In fact, what unified the concept of this specialization was to place a minimum and maximum age limit on the mortgage to be contracted, targeting people under 30 years of age, which was later extended to 35 years.
Based on this concept, these mortgages began to provide benefits that differentiated them from other offers. Part of these benefits was indeed shared, but in many cases, they even improved the bonuses of different types of promotions.
One of the first advantages that were commercially explained in almost all young mortgages was the increase in repayment terms. We must not forget that at the time of the fat cows for mortgage loans, from the end of the 90s of the last century until 2007/8, the limits for repayment terms were already high, finding without any problem 30-year mortgages and with few problems at 35 years. It was common to find that young mortgages offered repayment terms of up to 40 years in this framework.
Seen today, when achieving 30 years for the mortgage repayment term is complex, those enormous repayment terms may seem a little crazy; however, at the time they appeared not only very interesting but also a great idea, the time has shown that it wasn’t.
Another important aspect was the bonus of the differentials in the young mortgages. Generally, the rewards reducing differentials had to do with the contracting of battery products by the client. In other words, if the entity applied a 3% differential, this differential was reduced in percentages depending on whether a pension plan, life insurance, etc. was also contracted.
In the case of young mortgages, and although bonuses could also be found based on the bond, as a starting point the spreads were lower than in traditional mortgages. Of course, not excessively lower. With time warp we tend to magnify the differences in things and it might seem like we were talking about real bargains in terms of difference bonuses, which we weren’t. The discounts were not significantly different from those that could be obtained in any other mortgage.
Another advantage, or at least it was offered as such, was the possibility of applying grace periods. Currently, the grace periods, although they are still available, are hardly used and have been shown depending on the supply as a double-edged sword. Plus they are short. However, in the young mortgages of the recent past, grace periods between three and five years could be found in extreme cases, although on some occasions the small print did nothing but differ, increasing the cost of deferred interest even more.
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Who were youth mortgages for?
What is truly curious about the case, seen in perspective, is that the youth mortgages that were supposedly conceived to help young people access housing turned out to require complex contracting conditions that not many young people could really comply with.
Although the advantages seemed to be clearly aimed at favoring the young person, the conditions for contracting the mortgage made it very difficult for this to happen. Of course, one did not correspond to the other.
The age limits, which seemed to be the key to the matter, framed a segment of the population that has not yet fully settled in the labor market and whose regular income can be much more variable than at other ages. This should not be a problem but if we analyze in depth the conditions of those young mortgages we will see that it was.
In the first place, the financing limits were not usually higher than those of another loan and when they were, it was done under financial conditions. Today, we could only describe it as aberrant. This means that in the best of cases and with the financing of the value of the home at 80%, the young person who wanted to take out the mortgage had to cover not only 20% of the remaining value of the acquisition, but also all the expenses of completing the mortgage, these expenses are currently considered to be around 10% of the purchase price, but only a decade ago they were clearly higher since the application of commissions was higher. This situation forced a significant need for owner financing or to request more funding from the bank, something complex to obtain for a young person and that required not only guarantees but in many cases the solvency that did not exist. The other option could consist of those operations that we have already described as aberrant to unify all types of financing in a mortgage and increase the years of amortization, which in the end has meant economic ruin for many families.
The levels of solvency that young mortgages required for their contracting were high, certainly higher than what the salaries of many young people could allow. A young client profile was sought, but at the same time with a stable job and increased income, a scenario that was not at all realistic even in times of the best employment situation in Spain.
Of course, lastly, it was about mortgages with a considerable presence of linking from the contracting or subscription to other products. In many cases, this connection will be mandatory to obtain the bonuses that made the mortgage the most competitive and could range from the usual home insurance to contracting pension plans or savings products, passing through checking accounts, credit cards … This not only implied a radical change in the management of the personal finances of those who contracted these mortgages, but it could also increase the expense account in products that were not necessary or more expensive than in other market options.
In the end, in fact, in the analysis of these long-term mortgages, in many cases the supposed advantages of the discounts obtained at the time of signing the loan became actual economic sentences, without counting the devastating effects of the penalties for permanence, and of course everything we already know about falling home values and the collapse of mortgage payments in the aftermath of the crisis.
Other types of young mortgages
It is crucial to differentiate young mortgages as a product arising from the commercial will of the banks from young mortgages that arise from the collaboration between institutions and financial entities. And it is vital to do so because similar promotions can still be found today.
In this case, the collaboration between institutions and financial entities means that access to certain homes is carried out through mortgages with very advantageous conditions for young people. We insist that this is totally different from the above since in this case the subsidies that the institutions make are converted directly into benefits for the mortgages, they are very different scenarios, in the first case an institutional promotion that is supported by a subsidized financial product, in the second case a financial product to use.
Why there are no mortgages for young people in banks
As we have previously indicated, there are still young mortgages, both on specific occasions with specific promotional campaigns and some products that are marketed under this problem sporadically.
However, indeed, today we do not conceive the product as it was designed in the past and it is more of an aesthetic label added to the mortgage than a product that you actually look for compared to other mortgages.
As a specialized mortgage loan, these mortgages have practically disappeared and there is no single explanation for this fact. Obviously, the tremendous reduction in the supply of mortgages that have occurred after the economic crisis has a lot to do with it. Let us remember that the hecatomb of defaults to which thousands and thousands of homes in Spain were forced to change the mortgage scenario for a long time, in fact, it should do so forever as far as bad habits are concerned.
In this context, it is understandable that financial institutions withdrew the products with the highest volume of risk, further tightened the conditions of access to mortgage loans, and therefore will focus on margins and profiles that are quite different from those that can be given in a young mortgage. On the other hand, it must be clear that when we have reached historical lows in interest rates, it is complicated to find bonus points that would be attractive to generate exceptional and differentiated products. It is not ruled out that in a different context, in the future, we will again find a small explosion of specialized mortgage loans and that among them is that of young mortgages, but, for now,