Mexico: a 'Healthy' Country for Home Loans

Mexico is a country characterized by the positive health of its mortgage loan portfolio. According to the latest reports on the incidence of default in the country’s real estate portfolio y, the rate in housing loans is 2.6%, a decrease  from the 3.2% registered in 2021, according to the National Survey on Household Finances, published by INEGI. 

Among Mexicans who are “responsible” with their loans, it is important to highlight that women currently have the best punctual payment index: data from the National Baking and Stock Commission (CNBV) shows that the default rate for women is 2.6%, lower than the 3.6% for men. 

Such low default rates in the country are not a coincidence if we consider that the purchase of a home is, for the vast majority of Mexicans, one of the most important purchases that they will make in their lives. Data from INEGI reveals that housing is the main nonfinancial asset of Mexican families and the main piece of their patrimony. 

That means that the purchase of an apartment or a house does not lose its favor among the priorities of Mexicans when it comes to growing their wealth even in the face of the increase in the cost of housing in recent years, derived from the levels of inflation that have considerably increased the cost of construction materials and that have directly impacted interest rates. 

In fact, data from the Federal Mortgage Society (SHF) reveals that the price of homes with mortgages increased 10.4% in the fourth quarter of 2022, compared to the same period of the previous year; the accumulated annual variation was 8.9%, according to the same organization. 

Despite the fact that I can foresee that these changes and economic impacts will cause the real estate sector to grow at a slower rate than in previous years, it is important to highlight that for Mexicans, real estate credit is a product that will continue to be acquired and that will remain with low default rates under the perception that it is a profitable investment in the medium and long term. 

Nonetheless, how can we address these low default rates? It is important that all entities involved in real estate transactions and operations (owners, buyers, real estate companies, and banks that grant loans) make an effort to simplify the buying experience and generate greater transparency in the credit management process.

This is primarily because sometimes people acquire credits that are not 100% reflective of  their lifestyle. For this reason, it is important to go with companies that use technology and tools, such as big data, to make accurate comparisons of property prices and verify the relationship between their sale price and their characteristics. 

Matched with relevant buyer information, such as the percentage of the down payment they can afford, the estimated term, their level of income, and other aspects of their lifestyle, calculations can then be obtained in just a few minutes on mortgage loans that really fit the buyer’s needs. 

In this way, the credits are simulated and pre-approved, leaving the user with a much clearer and broader picture of what their monthly payments will be, as well as the fees and payments that must be made in the process, such as their deed expenses. 

Achieving the aforementioned is very important today for homebuyers who want to leave behind the times of the famous “fine print” and hidden fees, in addition to eliminating purchase processes that are full of paperwork, and cumbersome and time-consuming procedures. All of that always comes into play in operations, which can become confusing. 

Using technology and approaching companies that correctly analyze and use data makes it possible to create products that encourage timely payment, mitigating the risk of default. A buyer who really knows when he is going to pay and who does not have a debt that causes him ”headaches” will hardly be late. 

Information on the process of buying and acquiring a mortgage plays a fundamental role. An informed and properly advised client will be able to make better decisions when choosing their home. That is why, when people approach agencies and companies in the sector, they must find clear and reliable information on aspects like the relationship between the price and the characteristics of the property, legal and structural verification, as well as data on how the property was previously acquired and its background in order to avoid the possibility of fraud. 

I doubt that people in Mexico will stop having the intention of buying a home and growing their wealth. What I do believe is that over time, they will continue to reject those processes that do not involve digitization and that do not provide the clear information that they require to make what is sometimes the most important decision of their lives and for their families. 

Carrying out this type of process with transparency and ease is a very important incentive, especially considering that the data reported in recent years indicates that the profile of the current homebuyer is that of people between 40 and 59 years of age; this is in line with the perception in markets like the UK, where young adults feel they are incapable of making such a purchase.

Opening the door to digitization and offering simple processes based on technological platforms that allow for greater portability of information on devices, such as smartphones, is crucial when it is intended to encourage new generations to buy homes and do so under healthy credit schemes. 

In today's world, and as the economy prepares for a recession, having a real estate market that boasts positive credit health is important. Keeping default rates low becomes essential since, in the face of uncertainty, Mexicans see their house or apartment as their most important asset and the most important piece that builds their wealth.