RIO DE JANEIRO, BRAZIL – The Central Bank released this Friday morning the monthly Monetary and Financial Statistics report corresponding to December where it was observed that the average annual interest rate for mortgage loans rose nine basis points compared to November and reached 4% during the last month of 2021.
According to the figures of the governing body, the average rate for mortgage loans accumulated its ninth consecutive increase and in 2021 had an increase of 166 basis points.
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After reaching its historic low of 1.99% in October 2019, the rate has climbed almost 200 basis points.
The Association of Banks (Abif) has explained that the increase in interest rates for mortgage loans is “attributable to the sharp rise in the cost of long-term financing”. It was influenced by the withdrawal of pension savings approved by Congress, which affected the sources of long-term financing available to financial institutions.
Following this, banks have applied greater restrictions on mortgage financing and adjusted loan terms (less than 30 years) and higher footing requirements.
The banks have reiterated that “if the deterioration of the capital market persists, additional rate hikes cannot be ruled out in the coming months”.
These interest rate hikes have also hit the dynamism of the housing credit market. The Financial Market Commission reported that this type of credit expanded just 0.37% in November, the lowest level in 13 months.
The flow of new operations has also been reflected in the slower growth of mortgage loans due to higher interest rates, falling from US$1.2 billion per month between April and September to figures of around US$1 billion in October and November.
Another sign of how rising rates affect access to credit is that the Central Bank’s latest bank credit survey, corresponding to the fourth quarter of 2021, reported that 64% of the banks surveyed perceived weaker demand than the previous quarter.
Due to the withdrawals of pension savings and the uncertainty about what will happen with the pension system, the banks have indicated that “the financing conditions are less favorable, and as we have mentioned during the last time, it has generated a decrease in the conditions for clients, especially in long term financing such as mortgage loans”.
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Consumer loans’ average annual interest rates increased, ending 2021 at 22.02% per annum, up 111 basis points from November. This figure is the highest since February 2019.
In its report, the monetary authority explained that “the increase in consumer credit interest rates was due to higher rates for all its products, except for installment loans.”
After the increase in the monetary policy rate made by the issuing entity, experts indicated that consumer loans would be the first to see the effects of the measures being promoted by the Central Bank to control inflation, which exceeds 7% per year.
In the commercial loan portfolio – which are the financing instruments used by companies – they were not an exception either and rose 13 basis points compared to November to end the year at 8.71%. This number is the highest level reached since February 2017.