Chile: mortgage interest rates rise again for the tenth time

RIO DE JANEIRO, BRAZIL – The dream of homeownership continues to get more complicated. The Chilean Central Bank published today, February 7, the Monthly Monetary and Financial Statistics Report for January and showed that the average annual interest rate in Development Unit (Unidad de Fomento – UF) for mortgage loans reached 4.2%, its highest level since April 2014.

Likewise, the rate rose 20 basis points compared to December and accumulated its tenth consecutive increase.

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The president of the Association of Banks, José Manuel Mena, projected last week in the framework of the guild’s public account that the interest rates of UF+2% that the country observed before the social outburst could return at the end of the decade if the damage to the capital market is reversed after the withdrawals of pension savings of US$50 billion and the scenario of political uncertainty in the country.

The head of the banking sector indicated that “we have seen that rates have stabilized at around 5% and 6%. Unless we have implemented economic policies to rebuild savings, I do not see the possibility of this changing during the remainder of 2022. The average of this 2022 will be higher than the one that ended 2021; it will be over 5% real annual rate”.

He mentioned that the restrictions in the granting of mortgage loans for more than 20 years would continue due to the scenario of political uncertainty that has led to not being able to “rebuild that savings capacity or that capacity to take depositors, bond buyers, who take those resources for a very long term, 30 years”.

He added that “unfortunately what we are going to see in 2022 will still be terms of 15 years and at most 20 years in a timely manner, which is insufficient”.

He stated that “I see that the feet will be higher, not 10% as we remembered, but substantially higher”, due to the limitations in the financial sector and the risk policies of the entities.

Mena stressed that for the country to regain better financing conditions for mortgage loans, “there are more unknowns than clear answers, which generate instability in rates. Can we return to having the mortgage loans in a developed country, the best in Latin America, the cheapest in the region, the lowest dividend, given the longest term? Can we have them again? I think so, as long as we make an effort, a sustained work plan as a society. It implies public policies and creating the conditions of economic confidence to make this possible”.

He emphasized that “there is a lot of uncertainty. It is difficult for a bondholder or a buyer or a long-term depositor to be interested in a country whose year still has a lot of uncertainty, and that is why it is important to establish definitions and generate confidence, to build again with strength in such a long term because this has effects”.

COMMERCIAL AND CONSUMER CREDIT

The monetary authority reported that for consumer loans, the average annual interest rate stood at 22.96% during January, up 94 basis points compared to December 2021. In addition, it added its fifth consecutive increase.

Under this figure, the rate for consumer loans reached its highest record since February 2017.

The situation is repeated for commercial loans. The average annual interest rate was positioned at 9.26%, climbing 55 basis points compared to the previous month and accumulating its sixth consecutive rise.

Likewise, the interest rate for commercial loans reached its highest level since March 2013.

The increase in interest rates for these loans occurs amid the monetary policies implemented by the Central Bank to curb inflationary pressures in the country, two-thirds of which are caused by local factors.