Average of 10 percent spent more than earned

PALMA
BALEARIC residents spend an average of 10 percent more than they earn each month and the number of families who find it difficult to get through the month is increasing.

There has been a sharp rise in this problem since interest rates for bank loans and mortgages began to increase in June 2005, after reaching a historic low.

This was announced by Carlos Hernandez, delegate to the Balearics from the Association of Bank Users (Ausbanc-Consumo). In his opinion the current situation “is very grave” as from 1995 up to now the Balearics have gone from being a saving society to a debt ridden society.

According to Hernandez this means that half the residents have expenses which exceed their income, and the principal cause of this is the rise in the cost of housing over the last 12 years.

During this time the citizens of the islands have gone from having a level of debt of between 70 and 80 percent of their income to 110 percent, which means they need 10 percent more per month than they earn.

To this must be added another thing which the delegate considers “worrying”. That is the widespread opinion that, as their debt increases, so does the wealth of the families who have bought property during the last few years. However, in the case of a property slump they will not be able to continue paying for them, nor will they be able to sell them easily.

In addition to this, all these changes have been “very rapid” and are causing a situation where more and more citizens “are living on loans” with the additional burden of banks offering the consolidation of all loans into one, which “prolongs the agony in many cases”, said Hernandez.

In the opinion of Ausbanc-Consumo, the finances of many Balearic families is on the point of collapse and they could find themselves in dire straits when trying to pay off their debts. Although on a day to day basis, the arrears in payments are worse than ever, 0.5 percent of the total of credit sought (as opposed to eight percent in 1994), the banks are beginning to show concern for the future.

According to the latest figures from the Bank of Spain and the National Institute for Statistics (INE), the average mortgage on the Balearics is 123'000 euros, considered one of the highest in all of Spain and which is still rising, which also shows that we are the autonomous region where families have most problems getting through the month.

The main risks to Balearic family finances, according to Ausbanc-Consumo, is a disproportionate increase in unemployment, a rise in inflation or a drop in tourism.