Key rate hikes could push up historically low mortgage rates

The average annual mortgage interest rate in Mexico was just above 10% last month, according to central bank data.

Speaking at a press conference on credit expansion on August 17, Luis Robles, the president of Mexican banking association ABM, said, "The mortgage credit rates we have had and we have now are the lowest in the history of Mexico."

Recent key rate increases by the central bank, and very possibly a new rate hike by year-end, could push mortgage rates higher in 2H16 and 2017.

The average annual mortgage rate has been between 10.12% and 10.23% since May 2015 through July 2016, according to the central bank.

The low rates are driven by macroeconomic stability and low penetration in the market for this kind of product, local daily El Financiero reported Gerardo Aparicio, director of administration and finance studies at Universidad Panamericana in Mexico City, as saying.

Low rates have also spurred double-digit growth in mortgage credit this year - moving in sync with an overall credit boom in Mexico. The mortgage market represented 10% of Mexican GDP at the end of June.

Helping it get there, the average mortgage rate made a significant drop below the 11%-line when the central bank lowered the overnight rate to 3.75% from 4.0% in September 2013, falling to 9.4% in three months from 12.06% just before the announcement.

Almost 10 years before that, in early 2004, the average rate for mortgages stood just above 14%.

The central bank also reports that the annual total cost, which includes commissions and fees, reached an average of 12.52% last month.

The highest mortgage rates in July were: HSBC (10.99%), BBVA Bancomer (10.60) and Afirme (10.55%), while the lowest were: Ve por Más (9.60%), Banorte (9.70%) and Banca Mifel (9.99%), according to the financial services sector's consumer protection agency Condusef.

The one-point increase over three hikes by the central bank since December 2015 is now beginning to prop up the rates, according to Aparicio. The bank held the policy rate at 4.25% in its August 11 meeting.

While acknowledging that further policy rate hikes may soon raise mortgage rates, Robles noted that rates will stay unchanged for most of the existing loans since they carry fixed interest rates. The ABM chief added that those people who start taking out mortgages in the near future will continue to benefit from interest rates that are still low compared to past years.