Experts and banks: "We have the cheapest mortgages in Europe"
Loans for home purchases continue to experience high demand, which in turn contributes to pushing prices upwards.
BarcelonaAfter Malta, Spain has the cheapest mortgages in the eurozone. This is one of the factors contributing to the constant rise in housing prices, as supply is growing at a much slower pace than demand. Comparing the average interest rate for home purchases in August, the latest published figure for Spain is 2.69%, well below the eurozone average of 3.31% and the rates in countries like Germany (3.71%), France (3.01%), and Italy (3.28%). Demand for home loans is growing rapidly, according to the latest Bank of Spain survey for the second quarter.
The trend is not slowing. The Bank of Spain survey expects household mortgage applications to continue rising in the coming months. The rate of mortgage approvals grew by more than 40% through the second quarter at Banc Sabadell. CaixaBank, for its part, increased new loans for home purchases by 39% in the first nine months of this year. Its CEO, Gonzalo Gortázar, who does not yet foresee a halt in growth, although he does anticipate a slowdown in the pace of growth, reminded attendees at the results presentation that they have "the cheapest mortgages in the eurozone," a claim echoed by other banks and experts. Both Santander, one of the first to warn that mortgages were being offered too cheaply, and BBVA, criticized what they called an "irrational" situation in the mortgage market.
"Irrational" market
Along these lines, Bankinter, which had been maintaining a high rate of mortgage lending, announced it would reduce it as soon as it presented its third-quarter results. According to Gortázar, "it's illogical that interest rates in Spain are so far removed from the European average," below long-term public debt. In any case, he is more concerned about the trend "in two or three years" than this year and next, because if the rise in housing prices continues, fewer and fewer people will be able to afford to buy a home.
Buying is the essential element in a market lacking affordable rental options. Banks make commercial offers aimed at specific profiles. And 85% of loans are at a fixed rate, explains Ricard Garriga, CEO of Trioteca. According to the research center of this company specializing in mortgages, the average fixed interest rate for loans processed this month is 2.22%, and for mixed mortgages—those that combine a fixed and a variable component, typically starting in the fifth year—the average is 1.65%, with the variable component being the Euribor plus 0.80%. Ricardo Gulias, CEO of RN Tu Solución Hipotecaria, states that the best nominal rate offered has been 1.75%, although the annual percentage rate (APR), which includes all expenses from the origination fee to other charges, rises to 2.75%. He also notes that in 2022, during the period of declining interest rates, some mortgages were signed at 0.71% and APRs of 1.81%.
Intermediaries
Currently, mortgage brokers handle around a fifth of all mortgages, says Gulias. According to data from the Bank of Spain and the National Institute of Statistics (INE), each bank branch processes 1.8 mortgages per month, while brokers process dozens per day, adds Garriga. They are especially prevalent among young people. The average age of Trioteca's clients is 37. Furthermore, mortgages have become an essential tool for banks, which use them to sell home insurance, life insurance, and other related products, explains Gulias.
Variable-rate mortgages, with their benchmark, the 12-month Euribor, which rose again in October to 2.187%, increasing monthly payments when there is a six-month review (though not yet for those with annual reviews), are losing ground. In August, they represented 40.6 out of every 100 fixed-rate mortgages, almost 60%. Gulias states that the number of mortgages being granted, in any case, "is minimal" and seems to carry more weight because mixed mortgages are included. There are institutions, like CaixaBank, where more than 90% of new mortgages granted are fixed-rate. In the second quarter of this year, the capital financed continued to rise (169,650 euros). This latter fact has generated a slight increase in mortgage payments, although this change has not reduced the sensitivity of lenders in their risk tolerance, according to the Spanish Mortgage Association (AHE). The fact is that the amount requested continues to rise, in line with housing prices.
And what is the limit? "When the payments can no longer be made," says Gulias. In any case, we haven't reached that point yet, given that the default rate is around 2.9%, its lowest level since 2008. Furthermore, the representative from RN Tu Solución Hipotecaria says, "four out of ten sales are paid in cash," or a significant portion of the down payment is made in cash. Even so, 11.7% of new mortgages are granted for amounts exceeding 80% of the appraised value, the maximum recommended amount, driven by early buyers who need more financing; prices that are rising faster than family income and savings; and factors such as government guarantees to cover 20% of the down payment for groups like young people. The proportion of mortgages exceeding 80% has risen and needs to be monitored, but it is still far from the record 18% of 2008 and 2013. The AHE states that the prospect of further house price increases is driving more demand, "under the premise that today is a better time than tomorrow" to buy.
