The cycle of falling mortgage rates has ended

BarcelonaAs Spain prepares to close a record year for mortgage signings, potentially exceeding 500,000 across the country—levels not seen in fifteen years—a changing cycle is beginning with rising interest rates. "Most financial institutions are raising interest rates on home loans" because no further rate cuts are expected in the short term from the European Central Bank (ECB), explains the comparison website HelpMyCash.

This is reflected in the trend of the 12-month daily Euribor, the rate at which banks lend money to each other and the benchmark for variable-rate mortgages. Since the beginning of November, its average has been 2.216%, with an upward trend. In July, it reached its lowest point at 2.079%. Most loans are at a fixed rate, averaging between 2% and 2.3%. However, rates below 2% can still be found for certain profiles and linked to home insurance or payroll, "but less and less so," explains Joaquín Fervari, Director of Training and Processes at the intermediary Trioteca. He predicts that rates will fluctuate between 2% and 2.5% in the coming months.

According to HelpMyCash, at least seven banks have increased their mortgage interest rates since mid-summer: Banco Santander, BBVA, Bankinter, Coinc, Cajasiete, Unicaja, and ING. In all cases, fixed-rate mortgages and variable-rate mortgages with semi-annual reviews have also begun to rise. Everyone is predicting that the period of lower offers, which began in 2023, is over. The complaints about cheaper mortgages, voiced by representatives of the major banks in recent weeks, were a prelude to the price increases.

Cheaper loan, lower deposit

In any case, the cost of mortgage loans will remain the second lowest in the eurozone, behind Malta. However, at the same time, Spanish banks offer the lowest returns on savings through accounts and deposits, explains Miquel Riera, an analyst at HelpMyCash. The average interest rate for current accounts in the eurozone is 0.25%, and in Spain, 0.15%; for one-year deposits, 1.74%, and 1.69% in Spain; for one- to two-year deposits, 1.97%, and 1.35% in Spain; and for two-year deposits and above, 2.14% in the eurozone and 0.37% in Spain, according to ECB data from September.

So far, mortgage demand has continued to rise, as has the loan-to-value ratio. In the fourth quarter of 2023, it was 6.21%; in the first quarter of 2024, 6.7%; in the second, 7.42%; in the third, 8.2%; in the fourth, 8.6%; in the first quarter of 2025, 11%; and in the second, 11.7%. However, this is still far from the 18% seen in the late 2000s, when the housing bubble burst. One distorting factor is that it is calculated based on the appraised value, which is often even higher than the market value. Furthermore, many regions, including Catalonia, have created mechanisms to facilitate a 20% down payment for young people or those in vulnerable situations.

Delinquency at record lows

The Spanish Mortgage Association (AHE) states in its latest quarterly report that the decrease in mortgage rates has been accompanied by an increase in the average loan term, which now reaches 25.3 years. It also explains that this decrease coincides "with the inflationary behavior of housing prices." This has led to the average loan amount hovering around €161,000 "after experiencing an annual increase of 14%." And this has resulted in "an increase in mortgage payments," but without banks assuming greater risks. In fact, the bank default rate is at 2.93%, its lowest level since 2008. Cheap mortgages have also led to an increase in loans for single-family homes and single people. The latest report from the Trioteca Center for Studies (CET) reveals that single people account for 40% of online mortgage applications and sign their mortgages ten days earlier than couples. Furthermore, the profile of this single buyer stands out: young people with high purchasing power and a clear preference for fast, simple, and 100% online processes. In any case, everything could change with the rise in interest rates, although it won't be very pronounced. Savings capacity for couples is usually higher, and credit risk is lower. In fact, the limit that lenders typically set in relation to income is around 35%, and for couples it drops to between 29% and 30%, according to experts. The truth is that there is a boom in mortgage demand. In Spain, the number could exceed 500,000, at levels seen 15 years ago, but far from the more than 1.2 million annually in the years prior to the bursting of the housing bubble. In Catalonia, the number of mortgages could exceed 80,000, as in 2010 and 2022, although still far from the more than 200,000 of the years prior to the crisis. The Bank of Spain does not see a risk of the bubble bursting. In its autumn report on financial stability, although it warns of high prices due to demand exceeding supply, it states that "the observed expansion of real estate credit is contained in relation to GDP and the outstanding balance of bank loans, and has not translated into greater household debt." A key finding of the ECB's latest bank lending survey is that while mortgage issuance is increasing in Spain, so is the percentage of rejected applications. This is because, faced with a scarce and expensive rental market, low interest rates are pushing families towards buying, and not all can afford it.