Banks predict that demand for mortgages will continue to rise.

BarcelonaDemand for credit, especially mortgages, will continue to rise in the coming months, according to bank forecasts. In the period from January to March of this year, it already experienced a significant increase for the fourth consecutive quarter, thanks to the downward trend in the Euribor, the main benchmark for variable-rate mortgages, and the relaxation of conditions imposed by financial institutions.

The European Central Bank's (ECB) further cut in interest rates last week consolidates this trend toward cheaper lending. Consumer loans are experiencing the same or similar trends. Within this upward trend in demand, financial institutions do not anticipate increases in delinquency rates given the evolution of the labor market and wages.

Data from the Bank of Spain's first-quarter bank lending survey, which does not yet reflect the potential impact of the trade war launched by the Trump administration in the US, reflect the trend in recent months regarding loans for home purchase financing, with the official ECB interest rate closing the first quarter at 2.5%.

The average rate on new transactions stood at 2.87% in February, 1.75 percentage points lower than a year earlier, according to data from the Bank of Spain. This, when translated into an average loan of €152,233, represents a monthly saving of €60.30 or €723.60 annually. Fixed-rate loans, which are currently the most common, were signed in January at an average of 3.17%, according to data from the Bank of Spain; variable-rate loans had an initial rate of 2.94%. According to the National Statistics Institute (INE), in January, 35.8% of mortgages were variable-rate and 64.2% were fixed-rate. The interest rate trend has also favored the creation of new mortgages.

According to the Bank of Spain survey, loan demand increased across all segments in the first quarter of 2025, marking the fourth consecutive quarter. The increase in applications was moderate in the business financing segment, somewhat higher in household credit for consumption and other purposes, and particularly strong in loans to households for home purchases. The data is confirmed by some banks surveyed, which have even detected an increase in their market share.

Financial institutions point out that "the lower level of interest rates would have favored an increase in applications across all segments. Furthermore, in business financing, the greater need to finance investments in fixed assets and the lower use of internal financing would have also contributed," it states.

Fewer savings to finance

Regarding household loan applications for home purchases, the increase could also be explained by favorable expectations about the housing market and greater consumer confidence, along with higher spending on durable goods and less use of savings as a means of financing. This second factor could explain the increase in demand for household loans for consumption and other purposes.

For the second quarter of 2025, the financial institutions surveyed expect that lending criteria will remain unchanged in all three segments and that demand will continue to increase across all types. For the next six months, the financial institutions surveyed expect that decisions on official interest rates, with further cuts, will lead to a further decline in profitability and net interest income, "caused by lower unit margins, despite the positive impact on the volume of credit granted." They also anticipate that these decisions will continue to contribute to a slight decrease in financial institutions' need for provisions.