Between September 2020 and September 2021, the interest rate of the Banco de la República was 1.75%, its lowest level since 1995 according to the records of the Issuer.
The symptoms of higher inflation observed for the last twelve months in August and September of the previous year of 4.44% and 4.51, respectively, led the Bank’s board to initiate a series of upward adjustments to its interest rate , currently placing it at 7.50%.
For its part, the annualized Consumer Price Index (CPI) reported as of June this year by Dane is 9.67%, reaching a new maximum of 22 years, and the expectations for the end of this 2022 is that the indicator closes at 8.6%, far from the goal of 3%.
In a context of rising inflation, economic analysts estimate that the Bank of the Republic’s next decisions will continue to be aimed at containing this increase, and the tool they have to do so is by increasing its intervention rate to levels of 9% or more.
Credit rate rose 1.77% in one year
The fact that the intervention rate is 7.5% is very significant, since this is the interest charged by the Banco de la República for the resources it lends to the country’s financial entities, that is, for the money that reaches customers and users through credit in its different modalities.
One of these lines is that of mortgage or housing loans, which are gradually feeling the effect of the rise in the Issuer’s rate. For the last week of July of the previous year, when the BanRep rate was 1.75%, the average interest on loans for the purchase of Social Interest Housing (VIS), in pesos, from financial establishments was 10.53%.
With the intervention rate that was in force between May and June of this year of 6%, the average that credit institutions charged to those who took a mortgage obligation was 12.30%, that is, 1.77 points more than a year ago. year (see graph).
In June, thirteen banks, two financing companies, the National Savings Fund (FNA) and two financial cooperatives disbursed 1,445 loans for VIS in pesos for $95,717 million; and 1,530 for No VIS for $317,781 million.
Impact on new obligations
Bancolombia explained that the economic effect generated by the increase in rates by the Banco de la República is an increase in the rates of lines of credit and savings.
“In mortgage credit, this increase will be reflected for new credits, and the rate will be the one in force at the time of disbursement. It is important to emphasize that credits already disbursed will not have any effect on their rate and the agreed rate will be maintained, “said spokesmen for that financial entity.
Likewise, they specified that in this establishment the rates vary according to the type of product and housing: for VIS the interest is from 11.95% annual cash in pesos and from 7.55% in UVR. For No VIS homes from 11.15% in pesos and from 5.90% in UVR.
But, how much could housing credit become more expensive with the Issuer’s moves? Bancolombia spokesmen insisted that for already disbursed credits that are in the pesos modality, there will be no variations in the conditions.
“Regarding the credits that are in UVR, their quota will vary according to the behavior of the country’s inflation”, they recognized.
Thus, the increase in credit will depend on the next measures taken by the Banco de la República, and whether or not it continues with the rate increases, since these have a direct impact on the cost at which financial entities capture the resources to subsequently place them in the different lines of credit.
In his turn, Juan David Toro Álvarez, manager of Housing at BBVA, indicated that unlike other lines in which the client decides whether or not to finance himself at higher rates, in the case of the purchase of housing those who have mortgages already acquired , their rate is fixed, so the increase in the Issuer’s rates will not affect them. However, for new credits, the increase in the intervention rate will be reflected.
“The problem that this generates is access. At high levels in rates such as the current ones, a significant number of people interested in acquiring their home are prevented from doing so, since the housing law limits the percentage of income that can be used for the credit installment,” Toro noted.
The building will also see the effects
In the first half of this year, 127,218 new homes were sold in Colombia; this represented a growth of 2.5% compared to the same period of the previous year, according to figures from Coordenada Urbana.
The report found that seven out of ten homes sold were social interest. The regions that led sales were: Bogotá with 27,000 units, Valle with 18,000, and Atlántico with 15,000. This represented $27.1 billion of investment in housing, as of June.
Despite the positive figures, the builders’ union, Camacol, admitted that the crisis of inputs and supplies worldwide has become a problem for all sectors of the economy due to the exacerbated rise in prices.
The phenomenon is of such magnitude that “increases in metals such as iron and steel have threatened construction activity to the point of paralyzing social interest real estate projects,” Camacol described in its most recent report “Construction Trends ”.
The measurement of the costs of the sector (Building Construction Cost Index), from Dane, indicated an increase of 7.4% for residential buildings in the first five months of the year.
“In a scenario of rising and unpredictable costs, projects may be unfeasible. According to estimates, close to 250,000 Social Interest Homes, already pre-sold and about to enter the construction phase, could be unfeasible if the unprecedented rise in the price of construction materials continues”, noted Camacol (see ¿ Whats Next?).
Domino effect that will touch the builder
From the perspective of Sandra Rodríguez, housing manager of the Confiar cooperative, the increase in interest rates and the high cost of construction materials would lead to a significant increase in housing, which would even remove them from the VIS ceiling (up to $150 million), which is even worse since they would not be able to access housing subsidies and the debt capacity of households would not allow them access to housing.
And given the statements of some builders, in the sense that several financial entities began to warn them that interest rates for construction will increase in August, Rodríguez admitted that it is true.
“As has been said, due to the high inflation that led to the adjustment of the monetary policy intervention rate, the DTF indicator may exceed 10% in the coming months, a situation that undoubtedly puts interest rates at risk. “, said.
He also indicated that to the above must be added the lack of construction materials, the increase in the dollar exchange rate that impacts imported products and delays in shipments to projects, which leads to delays in construction work in times of delivery, and this in turn translates into higher financial costs for the builders.
On the other hand, according to the Fedesarrollo home purchase intention survey, last June the interest in buying a home was in negative territory at 18.2%, which is equivalent to an increase of 14.8 points compared to the report May, which was also -33%. Like the national average, in the capital of Antioquia the willingness to buy a house is in the negative field (-20.4%)