The Spanish mortgage market shows signs of being downsizing at a rapid pace. After three anomalous years, due to the contraction caused by the pandemic and the boom that followed with the recovery, loans for home purchases are falling without it being yet clear what level they will stabilize at. The figures for March, published this Friday by the INE, are an example of this: the 36,182 mortgages constituted on housing represent 15.7% less than a year ago, the biggest drop since the third wave of coronavirus hit Spain in January from 2021; but at the same time it represents a notable volume, above the around 31,000 mortgages that were signed in March 2019. And this movement is also accompanied by a radical change in monetary policy, with the rise in interest rates sharpest in the history of the European Central Bank (ECB), which has led to a clear increase in the cost of financing. The average interest rate in March, close to 3%, was the highest since April 2017.
With March, three of the last four months have ended with a contraction of the market. Mortgages fell by almost 9% compared to 12 months earlier in December, rose by close to 3% in January, fell again in February of 2% and, now, they are deepening on that path in the third month of 2023. In the first quarter of the year as a whole, around 109,500 loans for the purchase of housing were constituted in Spain, always according to INE figures, 5.6% less than in the first three months of 2022.
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“The mortgage data for March already clearly reflects the sharp drop that other leading indicators had been showing since the beginning of the year,” says Juan Villén, head of Idealista’s mortgage department, who believes that the drop will continue “in the statistics for the coming months , surely at least until the end of summer”. An appreciation in which Marta Pérez Amigot, from Ibercaja’s Economic and Financial Analysis Unit, agrees: “For this 2023 it is expected that this change towards lower levels of mortgage concession will be consolidated,” she writes in another analysis sent to the media, ” The financial system has the capacity to continue granting credit, as can be seen in the solvency indicators or the credit-to-deposit ratio, but demographic and social trends, the slowdown in the economy and the rise in rates point to a lower demand for part of the homes.
If you look at the borrowed capital, the figures also recede. In March the mortgages constituted for housing accounted for close to 5,200 million euros, which is 17% less than in the third month of last year. The average amount, 142,663 euros, is 1.5% lower than that of the same period in 2022, a sign of the paradigm shift in the real estate market: with more contained prices and purchases with less financing due to the high cost that this property now has after years ultra low rates.
That party, that of the official interest rates at 0% and the Euribor in negative, is over a long time ago. The Euribor, the indicator to which most variable mortgages in Spain are referenced, has risen month after month since the beginning of 2022. And the official ECB rates have risen seven times since last July, standing this May at 3.75 %. This change in monetary policy, with which the eurozone banking authority seeks to combat inflation, has had a clear reflection on mortgages. The average interest rate on the loans set up in March was 2.99%, the highest in almost six years. For fixed-rate mortgages, the average rate stood at 3.15%, which mirrors the situation of April 2018. For variable-rate mortgages, the average rate of 2.72% is the highest since May 2017 .
Despite being more expensive, the search for stability continues to be decisive for borrowers and fixed-rate mortgages continue to be the majority, with almost a 64% market share in March. But that percentage is falling as mortgages become more expensive and general rates climb, since many entities only offer fixed interest loans that are not very competitive. “The strategy of financial institutions to lower the price of variable mortgages and harden fixed ones is already having results,” says the Director of Studies of the Fotocasa portal, María Matos. “Those of these months will be practically the last credits that are signed at a fixed rate and it is expected that there will be an even more pronounced change in the trend,” she adds in a written comment on the INE data.
In the territorial analysis, all the autonomous communities experienced a mortgage decline in March except Asturias, where they rose a meager 0.8%. But in the magnitude of the fall there are significant variations. While the market fell by less than 10% in the Canary Islands, the Valencian Community and Castilla y León; in three other territories (Balearic Islands, Madrid and Castilla-La Mancha) it exceeded 20%. In the Spanish mortgage market as a whole (that is, all mortgages constituted on any property, not just homes), loans amounted to 47,459 in March, almost 17% less than a year earlier. The capital lent, above 7,787 million euros, fell by 11.5% compared to the third month of 2022.
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