Half of all home purchases and sales are now paid for in cash, largely due to the fact that a mortgage has become expensive and difficult to obtain as a result of interest rate hikes implemented by the European Central Bank last July. Since then, forecasts warned that by 2023, home prices would correct their upward trajectory and buying would slow.
House prices have risen more than 6% year-on-year, and although demand has fallen from 2022 levels, they are still above pre-pandemic levels. Despite the slowdown in mortgage underwriting, cash purchases have even reached a new record. This is according to data from the Spanish Council of Notaries. Five out of 10 homes purchased are paid for immediately, compared to only three historically.
According to the notaries’ own data from May, of the 58,880 home sales and purchases that month, only 25,754 involved a mortgage. All of these were transactions approved at a notary in the same month.
Although the Spanish National Institute of Statistics (INE) figures are slightly lower, they also confirm that home buying without a mortgage is booming.
Who can afford to pay cash for a house?
But who can afford to pay cash for a house? There are several buyer profiles who can avoid the mortgage. Around half of them had a home they put up for sale and took advantage of that cash to finance their new purchase. The rest used savings or asked family for help, according to real estate agent Fotocasa.
Those who can settle in cash include foreigners, who currently make up 16.5% of all customers, according to real estate agent Tecnocasa. Foreign demand for homes remained high in the first quarter of the year, accounting for nearly one-sixth of all purchases.
British, German and French people top the list and their preferred locations are the Balearic Islands, the Valencian Community and the Canary Islands.
Investors and funds are also investing in homes. However, analysts assure that more than 90% of sales and purchases are made by individuals.
Effects of cash sales
Cash sales seem to be the reason why housing prices are still not moderating. Moreover, the market is still benefiting from the savings capacity of Spaniards during the pandemic. This too reached a record 17.7% of their gross disposable income. And although interest rates are lower than a year ago, the fact that the end of the rate hike is not yet in sight – the ECB is expected to raise interest rates by another 25 basis points on July 27 – is prompting buyers to bring forward their purchases as they expect worsening financing and price conditions. Although demand is slowing this year – home sales fell 6.7% year-on-year in May – it is still well above supply. The share of new homes on the market is still very low, especially in large cities. Existing apartments were highly sought after for a time and therefore less available. This also pushed up prices, with an average value of €1,921 per square metre.
At the same time, the number of loans to purchase a home has fallen sharply, to 25% in May. Banks have tightened standards for loans to businesses and households for buying and selling because of a greater perception of risk. The ECB recently acknowledged that this tightening of conditions “remains at the highest level since the 2011 sovereign debt crisis.