Highest demand for housing in Spain since property bubble

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demand for housing

MADRID – The demand for housing is rising. So much so that numbers are the highest since the housing bubble in 2007. Housing demand increased by 21% in the summer of 2021 compared to the previous year, after reaching a volume of more than 160,000 homes.

It is the best figure in a third-quarter since 2007 and the third-highest figure in a quarter since the end of that year. Only surpassed by the second quarter of 2018 and the second quarter of 2021. This writes real estate portal Idealista based on the latest bulletin of the Spanish Mortgage Association (AHE).

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Increase of 37% in new construction permits

The AHE also points out that the third quarter of 2021 ended with more than 28,000 permits for new-build homes. This translates into 4% more quarterly and 37% more than in the summer of 2020. Thanks to this growth, the real estate sector indicators are already at levels comparable to those of 2019, the year before the pandemic broke out.

Mortgage market key benchmarks remained low

The AHE also highlights that key mortgage market benchmarks remained low. This was the result of the expansive policy of the European Central Bank. As a result, historical lows have been reached throughout the year.

Euribor

The Euribor – negative for six years – ended the year with an interest rate of -0.502%. This interest rate, which serves as a reference point for most Spanish mortgages, broke the limit of the marginal deposit facility, which stands at -0.5%. Thus, the Euribor returns to the lows of early 2021.

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In this context, the weighted average percentage of home purchase financing operations in October 2021 was 1.47%. Those are levels “markedly lower than estimates from a year ago,” the AHE points out.

Fixed-rate for peace of mind

Against this backdrop of interest rates, many borrowers would choose to take out a fixed-rate mortgage. The price is then a bit higher, but it does give the person taking out the mortgage more peace of mind in the future, according to AHE. Data from AHE also shows that 59% of mortgages issued are fixed-rate and 18% are mixed, with an initial fixed-rate for a term of one to ten years.

Strong increase in mortgages taken out

The data from the statistical office INE, which is fed by the statistics of the Real Estate Registries, also point to the same trend of growth in the Spanish mortgage market. More than 216,000 fixed loans for the purchase of a house were signed in Spain between January and October. That’s well ahead of the 2020 record (just over 160,300 fixed-rate mortgages).

Favourable context

The AHE also points out that the dynamism of new mortgage contracts is fuelled by the improvement in the health and economic context and the environment of “very favourable” financing conditions. The mortgage association foresees the same trend in 2022.

Number of mortgages taken out increases by 53% on an annual basis

The number of mortgages taken out on residential properties in the third quarter was 53% higher than in the same period of 2020 and 44% higher than the registered volume in the third quarter of 2019. However, that period was affected by the entry into force of the new mortgage law. This formalization of new loans has the effect of increasing household mortgage debt.

The increase is 0.8% year on year in the third quarter. AHE confirms that it accumulates six consecutive months of gains, breaking with ten years of declines. However, the default rate remains limited at 3% in the summer of 2021 and 3.3% in the summer before.

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