MADRID – The mortgage market in Spain continues to shrink. According to recent data from the National Institute of Statistics (INE), the number of mortgage loans for home purchases fell by almost 30% in September compared to the same period in 2022.
This marks not only the eighth consecutive decline, but also the deepest in the downward trend that the mortgage market has been experiencing since the beginning of this year. The slowdown in the sector is intensifying as the year draws to a close, according to Ferran Font, director of studies at real estate portal pisos.com.
Loss of confidence in the housing market
General confidence in the housing market is declining, which contributes to the decline in the number of mortgages, according to the General College of Real Estate Agents (COAPI). September’s figures clearly reflect the current climate and declining demand for home purchases. This is driven by rising costs of living and mortgage financing, as well as global uncertainty. Political unrest and legal uncertainty surrounding the Housing Act have also contributed to the loss of confidence.
Increase in interest rates
As the number of mortgages continues to decline, interest rates are steadily rising. In September, the average loan origination rate peaked at 3.26% – the highest since February 2016, with an average term of 24 years. Despite the upward trend, the increase in average interest rates has slowed in recent months.
ECB policy and the mortgage market
After ten consecutive interest rate increases, the European Central Bank (ECB) decided in October to reduce the pace of interest rate increases. Despite inflation moving closer to the 2% target, the ECB, led by Christine Lagarde, does not expect to cut interest rates in the near term.
Euribor remains stagnant above 4%
The Euribor, the main reference in Spain for calculating the interest on most variable mortgages, remains stagnant above 4%. This index closed September with an average of 4.15% and rose only slightly to 4.16% in October. This stagnation points to a continued trend of high interest rates. This has a direct influence on the costs of variable mortgages in Spain.
Trends in variable and fixed rate mortgages
The increase in interest rates in September is mainly due to the increase in variable rate financing costs. This increased from 2.89% in August to 3.09% in September. For fixed-rate mortgages, on the other hand, the average interest rate fell from 3.54% to 3.4%.
Although fixed rate mortgages continue to average higher interest rates and are gradually losing ground compared to traditional variable mortgages, they remain the preferred option for most new mortgage borrowers. Specifically, 56.2% of home loans granted in September were at a fixed interest rate, while the remaining 43.8% had variable interest rates.