Record number of mortgage deals signed: Biggest increase since before pandemic

MORTGAGE contracts signed for buying new residential property have risen by 41.2%, according to the most recent figures – the highest increase since December 2019, three months before the Covid-19 pandemic hit Europe, according to the National Statistics Institute (INE).

At present, home loan figures for the last full month only go up to the end of June, with July not yet released and August still to conclude.

But in June alone, a total of 37,961 new mortgages were signed for – not including remortgages or extensions to existing ones – being a rise of well over a third and not far off half the figure in the same month in 2020.

The amount of capital borrowed also increased, by 49%, with the average loan rising to €140,456 – the biggest since February 2020.

June 2021 was the fourth consecutive month where the total amount borrowed was more than 40% above that of the same months in 2020.

Year on year, the number of mortgages taken out in the first half of 2021 was 11.2% higher than in the first six months of 2020, and the total capital borrowed was 12% more than over the same period last year.

Variable-rate mortgages were the most requested in June, although fixed rates were mainly sought between January to April inclusive.

Low Eurozone interest brings hike in variable-rate loans

Spanish mortgages are linked to the Eurozone interest rate, or Euribor, which has been in negative figures since February 2016 – a deliberate strategy on the part of the Central European Bank (BCE) to stimulate growth and cashflow across the common currency area, and make it easier and cheaper to obtain finance.

Almost every since that month, five-and-a-half years ago, analysts have been predicting interest rate rises and the end of the 'honeymoon' that has seen monthly mortgage repayments halve, on average, since the worst years of the financial crises.

But as yet, rates have been consistently dropping – the setback to the Eurozone economy caused by the pandemic suggests they are not likely to go up by more than 100ths of a percentage point in the near future – and the Euribor typically rises or falls very gradually over a period of years, with little or no history of sudden spikes or troughs.

Also, Spanish variable-rate mortgages are reviewed and adjusted annually – sometimes six-monthly, but both options are available – and do not change from month to month, meaning an overnight interest-rate hike will not catch homeowners unawares with an unexpected larger bill.

This gives borrowers time to plan – if rates start to rise, they have up to a year to watch their progress and think about whether or not it is worth applying a fixed rate.

With little change in the Euribor in months, if not years, and mostly in a downward direction, only 38.8% of new mortgages in June were fixed-rate loans – the lowest figure since February 2020 – and, for the second consecutive month, variable-rate mortgages accounted for above 60% of the total.

The average total interest on mortgages for homebuying in June was 2.28%, the lowest seen yet, and works out at Euribor plus 2.76%, since the Eurozone interest rate at the close of the month was -0.484%.

New mortgages by region

The highest number of new home loans per region was seen in Andalucía, with 7,853 new mortgages, followed by Madrid at 7,372 and Catalunya at 5,889 – in keeping with the fact that these are some of the most densely-populated parts of the country and, in the case of Andalucía, one of the largest in terms of land mass.

Regions which lent the most in capital in June this year were also these three – it is no surprise that Madrid topped the scale, given that home prices in the capital and in its most up-market commuter towns are among the highest in the country – with a total of €1.52 billion borrowed for purchasing property.

Andalucía was in second place, lending €983.3 million, followed by Catalunya, at €968.7m.