A SHARP rise in the number of fixed-rate mortgages in Spain has been reported in the past two years – and they now account for 43% of every new loan taken out.
What does 2023 hold in store for the housing market?
04/12/2022
RISING energy costs, price-led inflation and increasing Eurozone interest rates have led experts to speculate on what could happen in Spain's housing market in 2023 – and their views offer a range of differing scenarios.
They include a reduction in the number of property purchases, a small rise in home values, and growing interest in renting instead of owner-occupancy.
Spain has one of Europe's highest rates of home ownership – approximately three-quarters of occupied residential property is lived in by those who have bought or inherited it, with or without a mortgage – meaning the rental market has tended to be largely seasonal, although younger adults finding it increasingly hard to get onto the housing ladder are becoming the largest tenancy market, especially with the difficulty they find in obtaining affordable rent prices in big cities.
Over two-thirds of homes in Spain are flats or apartments, even in villages, as development has historically sought to maximise land space.
Flats and apartments tend to be very generous in size, and are frequently much larger than a house with the same number of bedrooms.
Fewer sales, but small home price rises and 'strong latent demand'
Some property market analysts predict an approximate 12% shrinking in buying and selling next year, largely due to the first rise in the Euribor, or Eurozone interest rate, in many years.
This summer, for the first time since February 2016, the Euribor rose above zero, meaning mortgages are more expensive at the end of 2022 than they were at the same time last year.
The greater cost of mortgage repayments, combined with reducing household spending power as a result of consumer and energy prices going up, are predicted to lead to some reduction in homebuying.
But the same analysts believe there will be 'no major falls in home values', due to a 'very strong, latent demand' for buying.
In fact, they forecast rises in home prices of around 5% in 2023.
Demand will still exist, but potential buyers are more likely to postpone their decisions and keep their eye on the news – whether the conflict in Ukraine continues to affect energy prices and the direct effect of this on the cost of consumer goods, whether they are likely to get a pay rise as companies across Spain attempt to soften the blow of inflation for their employees, and whether the European Central Bank (BCE) will consider this inflation to be safely contained and therefore minimise interest rate rises.
The market is likely to adapt to encompass other formats of acquiring a home – renting with the option to buy being one of these.
BBVA and ING – more cautious about price growth
BBVA Research, the analyst arm of the high-street bank, forecasts a 'minor shrinking' in home sales for the coming year, but assures that actual levels of property selling will 'continue to be high' – just not as high as in 2022.
Growth in home values will be 'nominal' – in region of 2% - in 2023, the BBVA says.
ING bank predicts a 'cooling down' in the home-buying fever seen in 2022, the first full year of the decade with no pandemic-related restrictions, and that the slowdown in sales and purchases will be more pronounced at the beginning of next year than in the months that follow.
The bank believes home prices could close 2022 with a year-on-year increase of 7%, but that this will slow down to around 1% in 2023.
To this end, home value rises will be 'below inflation', which is forecast for 2023 as 4.4%.
It means that, in real terms, homes will fall in value by 3.4% - even though the actual price tag will increase, their value in financial terms will be less than in 2022.
'Covid savings' have helped housing market
Analysts across the board concurred that the spike in purchases in 2022 was a combination of pent-up desire curbed during the pandemic, of realising during lockdown that they wanted to live somewhere with more private outside space, the substantial rise in remote working – removing the obligation to live within comfortable commuting distance of the workplace – and 'Covid savings', or disposable income that was not spent on holidays and leisure activities during the restrictions as a result of businesses being partially or completely closed and events cancelled.
How variable-rate mortgages work in Spain
Spain's mortgages are directly linked to the Euribor, meaning variable-rate loans fell consistently in the last decade and more markedly so over the six years until early 2022.
Variable-rate mortgages in Spain are reviewed annually – in theory, from a homeowner's point of view, it does not matter what happens to the Eurozone interest rate for 364 days of the year; the only important figure is the rate on the review date.
This means even variable-rate loans are, by default, on a one-year fixed rate.
But even fixed-rate mortgages – which have now overtaken variable-rate loans for the first time in history, accounting for over 60% - are affected by Euribor rises, since they are typically structured as 'Euribor + X%'.
Applying for a mortgage in Spain
Before applying for a mortgage with a new bank in Spain, customers should come prepared – with at least their last three payslips, last three to six months' current account statements, their most recent annual tax return results or Declaración de la Renta, and a copy of their Vida Laboral.
The latter is a full breakdown of the person's earnings, by days, and Social Security (national insurance) contributions, from the moment they began as an employee or self-employed person in Spain, and can be obtained from the Social Security (Seguridad Social) website.
Different documents will be needed for people who are not in employment – those who are self-employed, or live off other sources of income, such as investments – and these people should normally contact their gestor, or accountant and legal advisor, to ask for the relevant paperwork.
A gestor will know exactly what is needed if the mortgage applicant is unsure.
Spanish banks will normally work on a basis of mortgage repayments being no more than 30% of a person's monthly income, although this may be different in the case of people with very high incomes who can easily live off the balance after paying out 50% or more.
Also, banks in Spain will want to ensure the mortgage applicant is not currently paying off debts that exceed 15% of their annual income.
HelpMyCash's advice on finding the ideal mortgage
Experts at HelpMyCash recommend either using a specialist mortgage broker, or consulting offers from at least three different banks, and having a clear idea of the type of loan the applicant wants before starting negotiations.
Arranging an appointment with a senior employee or branch manager is also advised, if possible, since this person will be in a stronger position to influence their company's risk management department, to make decisions without consulting higher authorities, and will have the greatest product knowledge, HelpMyCash says.
Some new homebuyers in Spain have reported being 'obliged' to take out buildings and contents insurance, current accounts and other products with a bank they contract a mortgage through, but this is not the case – a mortgage-holder can acquire their insurance, or bank, with any other firm they wish and is not legally bound to do so from the loan-providing entity.
This said, if the mortgage provider's offers of insurance and other products appear to be competitive, agreeing to take these at the same time as the loan may act as a positive – the applicant needs to be perceived as someone capable of repaying the money borrowed, but the additional product purchase means they may also be seen as a customer who is profitable, not just safe, HelpMyCash explains.
Most mortgage providers, however, will expect to see evidence of buildings insurance cover and possibly, depending upon age and general health, life insurance cover, before granting the loan – even if these policies are provided by another entity.
Fees, taxes and typical loan-to-value ratio
Buyers who need a mortgage should be aware that fees and taxes involved, including legal costs, normally come in at around 12.5% of the purchase price of a property.
This amount must be factored in when deciding how much a person can afford when looking at potential homes – but it does not necessarily have to be paid up front; the 12.5% fees can be included in the mortgage loan total.
As a general rule, Spanish banks will only lend up to 80% of the purchase price or market value of a property, whichever is the lowest, for a main residence, or up to 60% for a second or subsequent residence.
This means the main barrier to home ownership for would-be first-time buyers is the size of the deposit they would have to save up for.
Very occasionally, banks can be found offering a higher loan-to-value ratio than 80% or 60%, but these are rare at present, and their interest rates may be greater to reflect the additional risk.
Related Topics
RISING energy costs, price-led inflation and increasing Eurozone interest rates have led experts to speculate on what could happen in Spain's housing market in 2023 – and their views offer a range of differing scenarios.
They include a reduction in the number of property purchases, a small rise in home values, and growing interest in renting instead of owner-occupancy.
Spain has one of Europe's highest rates of home ownership – approximately three-quarters of occupied residential property is lived in by those who have bought or inherited it, with or without a mortgage – meaning the rental market has tended to be largely seasonal, although younger adults finding it increasingly hard to get onto the housing ladder are becoming the largest tenancy market, especially with the difficulty they find in obtaining affordable rent prices in big cities.
Over two-thirds of homes in Spain are flats or apartments, even in villages, as development has historically sought to maximise land space.
Flats and apartments tend to be very generous in size, and are frequently much larger than a house with the same number of bedrooms.
Fewer sales, but small home price rises and 'strong latent demand'
Some property market analysts predict an approximate 12% shrinking in buying and selling next year, largely due to the first rise in the Euribor, or Eurozone interest rate, in many years.
This summer, for the first time since February 2016, the Euribor rose above zero, meaning mortgages are more expensive at the end of 2022 than they were at the same time last year.
The greater cost of mortgage repayments, combined with reducing household spending power as a result of consumer and energy prices going up, are predicted to lead to some reduction in homebuying.
But the same analysts believe there will be 'no major falls in home values', due to a 'very strong, latent demand' for buying.
In fact, they forecast rises in home prices of around 5% in 2023.
Demand will still exist, but potential buyers are more likely to postpone their decisions and keep their eye on the news – whether the conflict in Ukraine continues to affect energy prices and the direct effect of this on the cost of consumer goods, whether they are likely to get a pay rise as companies across Spain attempt to soften the blow of inflation for their employees, and whether the European Central Bank (BCE) will consider this inflation to be safely contained and therefore minimise interest rate rises.
The market is likely to adapt to encompass other formats of acquiring a home – renting with the option to buy being one of these.
BBVA and ING – more cautious about price growth
BBVA Research, the analyst arm of the high-street bank, forecasts a 'minor shrinking' in home sales for the coming year, but assures that actual levels of property selling will 'continue to be high' – just not as high as in 2022.
Growth in home values will be 'nominal' – in region of 2% - in 2023, the BBVA says.
ING bank predicts a 'cooling down' in the home-buying fever seen in 2022, the first full year of the decade with no pandemic-related restrictions, and that the slowdown in sales and purchases will be more pronounced at the beginning of next year than in the months that follow.
The bank believes home prices could close 2022 with a year-on-year increase of 7%, but that this will slow down to around 1% in 2023.
To this end, home value rises will be 'below inflation', which is forecast for 2023 as 4.4%.
It means that, in real terms, homes will fall in value by 3.4% - even though the actual price tag will increase, their value in financial terms will be less than in 2022.
'Covid savings' have helped housing market
Analysts across the board concurred that the spike in purchases in 2022 was a combination of pent-up desire curbed during the pandemic, of realising during lockdown that they wanted to live somewhere with more private outside space, the substantial rise in remote working – removing the obligation to live within comfortable commuting distance of the workplace – and 'Covid savings', or disposable income that was not spent on holidays and leisure activities during the restrictions as a result of businesses being partially or completely closed and events cancelled.
How variable-rate mortgages work in Spain
Spain's mortgages are directly linked to the Euribor, meaning variable-rate loans fell consistently in the last decade and more markedly so over the six years until early 2022.
Variable-rate mortgages in Spain are reviewed annually – in theory, from a homeowner's point of view, it does not matter what happens to the Eurozone interest rate for 364 days of the year; the only important figure is the rate on the review date.
This means even variable-rate loans are, by default, on a one-year fixed rate.
But even fixed-rate mortgages – which have now overtaken variable-rate loans for the first time in history, accounting for over 60% - are affected by Euribor rises, since they are typically structured as 'Euribor + X%'.
Applying for a mortgage in Spain
Before applying for a mortgage with a new bank in Spain, customers should come prepared – with at least their last three payslips, last three to six months' current account statements, their most recent annual tax return results or Declaración de la Renta, and a copy of their Vida Laboral.
The latter is a full breakdown of the person's earnings, by days, and Social Security (national insurance) contributions, from the moment they began as an employee or self-employed person in Spain, and can be obtained from the Social Security (Seguridad Social) website.
Different documents will be needed for people who are not in employment – those who are self-employed, or live off other sources of income, such as investments – and these people should normally contact their gestor, or accountant and legal advisor, to ask for the relevant paperwork.
A gestor will know exactly what is needed if the mortgage applicant is unsure.
Spanish banks will normally work on a basis of mortgage repayments being no more than 30% of a person's monthly income, although this may be different in the case of people with very high incomes who can easily live off the balance after paying out 50% or more.
Also, banks in Spain will want to ensure the mortgage applicant is not currently paying off debts that exceed 15% of their annual income.
HelpMyCash's advice on finding the ideal mortgage
Experts at HelpMyCash recommend either using a specialist mortgage broker, or consulting offers from at least three different banks, and having a clear idea of the type of loan the applicant wants before starting negotiations.
Arranging an appointment with a senior employee or branch manager is also advised, if possible, since this person will be in a stronger position to influence their company's risk management department, to make decisions without consulting higher authorities, and will have the greatest product knowledge, HelpMyCash says.
Some new homebuyers in Spain have reported being 'obliged' to take out buildings and contents insurance, current accounts and other products with a bank they contract a mortgage through, but this is not the case – a mortgage-holder can acquire their insurance, or bank, with any other firm they wish and is not legally bound to do so from the loan-providing entity.
This said, if the mortgage provider's offers of insurance and other products appear to be competitive, agreeing to take these at the same time as the loan may act as a positive – the applicant needs to be perceived as someone capable of repaying the money borrowed, but the additional product purchase means they may also be seen as a customer who is profitable, not just safe, HelpMyCash explains.
Most mortgage providers, however, will expect to see evidence of buildings insurance cover and possibly, depending upon age and general health, life insurance cover, before granting the loan – even if these policies are provided by another entity.
Fees, taxes and typical loan-to-value ratio
Buyers who need a mortgage should be aware that fees and taxes involved, including legal costs, normally come in at around 12.5% of the purchase price of a property.
This amount must be factored in when deciding how much a person can afford when looking at potential homes – but it does not necessarily have to be paid up front; the 12.5% fees can be included in the mortgage loan total.
As a general rule, Spanish banks will only lend up to 80% of the purchase price or market value of a property, whichever is the lowest, for a main residence, or up to 60% for a second or subsequent residence.
This means the main barrier to home ownership for would-be first-time buyers is the size of the deposit they would have to save up for.
Very occasionally, banks can be found offering a higher loan-to-value ratio than 80% or 60%, but these are rare at present, and their interest rates may be greater to reflect the additional risk.
Related Topics
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