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.
One in three homes bought without a mortgage
13/02/2024
MORTGAGE-LENDING has reduced dramatically in Spain in the past year, but that has not stopped homes on sale being snapped up: Over a third were purchased in cash, according to the latest figures.
Eurozone interest rates soaring since the end of 2022 mean homebuyers who need a loan are tending to hold off for the time being, preferring to wait until these fall again – once the European Central Bank (BCE) considers inflation is sufficiently contained to do so.
Until mid-2022, with the Euribor having been in negative figures since February 2016, mortgages were cheaper than they had ever been – property prices continued to rise, but buyers could get far more for their money.
In fact, that year saw a record high in the number of variable-rate mortgages granted in Spain – 73% of loans signed for in June 2022, according to the National Statistics Institute (INE).
Figures for the 2018 year end showed variable-rate mortgages made up 62.8% of the total, but with the Eurozone interest rate remaining below zero, consumer confidence began to grow as more time passed.
Variable rates have long been the default in Spain and, as mortgages are reviewed annually, homebuyers automatically get a one-year fixed rate and do not need to worry about sudden rises from month to month.
By November 2023, fixed-rate mortgages had overtaken variable rates, at 53.2% compared with 46.2%, and the number continues to climb.
Whilst property purchases have reduced in number as a result of the interest rate hike, the market has not stagnated – a combination of buyers who are confident the Euribor will fall again to manageable levels and decide to forge ahead in the meantime, and the high number of home-seekers who can afford to buy outright, mean the market remains at least stable.
The INE reveals that, from January to November 2023, a total of 353,633 mortgages were granted for the 550,215 property purchase transactions registered – a total of 64.81%, meaning 35.19% of homes were snapped up by cash buyers.
And although mortgages were involved in 71.5% of property purchases in 2019, before the pandemic forced a dramatic slowdown in sales – meaning 28.5% were bought without a loan – the number of transactions was lower than in 2023, despite the Euribor increase.
INE figures show that 505,467 residential properties were sold in 2019, involving 361,291 mortgages.
Estate agencies have reported a 'notable cooling off' in 'buying fever', although the figures appear to show differently – more homes sold, but with cash purchases gradually gaining ground.
How the Euribor has evolved
The interest rate set by the BCE for all countries using the common currency – the euro – first rose above zero in April 2022 after six years and two months in negative figures, but the change was not dramatic – from the record low of -0.502% in December 2021, it had increased to 0.013%, meaning the difference in monthly repayments to the average borrower was just a few euros.
But within eight months, it had broken the 3% barrier for the first time since December 2008.
Another seven months on would see the 4% frontier shattered – July 2023 closed on 4.149%, and October brought a new record of 4.173%.
Prior to 2023, the last time the Euribor was above 4% was in November 2008, after five months above 5% - including the highest-ever figure of 5.393% in July that year – and, from that moment on, went into a drastic downward spiral.
Before the 2022 rises, the last time the Eurozone interest rate was 2% or more was December 2011, and it remained under 1% from August 2012 for almost a decade.
An unprecedented move to drop the rate into negatives for the first time in the history of the euro came in February 2016, which closed on -0.008%, leading homeowners and consumers with personal loans and credit cards to seek answers to questions they never thought would arise: If interest on a mortgage is not just nil, but lower than nil, does this mean the lender pays you, rather than the other way around?
Naturally, the answer was no, since banks do not offer mortgage interest rates at exactly the same figure as the Euribor – it will always be 'Euribor + X%' - and, even if they did, negative interest would simply be applied as 0%, not as a discount or rebate.
Could it all go back to how it was?
The BCE opted to increase interest rates once rotating chairman Mario Draghi passed the reins to Christine Lagarde, former head of the International Monetary Fund (FMI), at around the time of the Russian invasion in Ukraine.
This conflict caused an upward spiral of inflation within the Eurozone – and, after years of struggling to get inflation to rise to the desired 2.5% target, the BCE was now grappling with this figure being suddenly surpassed and then multiplied.
Although Eurozone inflation hovered at around 1% over the latter half of the 2010s, only occasionally peaking at near 2%, it shot to 10.6% in October 2022, and repeatedly soared above 8% between December 2022 and June 2023, with some individual countries experiencing extremes of over 12%.
The trend has reversed dramatically, with inflation in freefall over 2023 and, even with a slight rise in December, still ended the year on 2.9%. It currently sits at 2.8%, meaning interest rates do not have to go up sharply at the moment, but the estimated month-end average for February 2024, at 3.621%, is still higher than January's 3.609%.
And the BCE has been warning for months now that it cannot reduce interest rates significantly 'any time soon', meaning we all may have to get used to higher mortgage payments for a few more years.
It would seem unlikely that the Euribor will fall to near zero, let alone negative figures, in the foreseeable or even longer-term future, given that its doing so was in response to a global recession that started in 2008 and reached its most severe in 2012.
Any reductions are likely to be small, and buyers needing a mortgage should budget for the Euribor staying within the 3% bracket for the medium term: Until the BCE can be confident that the recent plummeting inflation figures are here to stay, it will not risk any major interest rate cuts.
Related Topics
MORTGAGE-LENDING has reduced dramatically in Spain in the past year, but that has not stopped homes on sale being snapped up: Over a third were purchased in cash, according to the latest figures.
Eurozone interest rates soaring since the end of 2022 mean homebuyers who need a loan are tending to hold off for the time being, preferring to wait until these fall again – once the European Central Bank (BCE) considers inflation is sufficiently contained to do so.
Until mid-2022, with the Euribor having been in negative figures since February 2016, mortgages were cheaper than they had ever been – property prices continued to rise, but buyers could get far more for their money.
In fact, that year saw a record high in the number of variable-rate mortgages granted in Spain – 73% of loans signed for in June 2022, according to the National Statistics Institute (INE).
Figures for the 2018 year end showed variable-rate mortgages made up 62.8% of the total, but with the Eurozone interest rate remaining below zero, consumer confidence began to grow as more time passed.
Variable rates have long been the default in Spain and, as mortgages are reviewed annually, homebuyers automatically get a one-year fixed rate and do not need to worry about sudden rises from month to month.
By November 2023, fixed-rate mortgages had overtaken variable rates, at 53.2% compared with 46.2%, and the number continues to climb.
Whilst property purchases have reduced in number as a result of the interest rate hike, the market has not stagnated – a combination of buyers who are confident the Euribor will fall again to manageable levels and decide to forge ahead in the meantime, and the high number of home-seekers who can afford to buy outright, mean the market remains at least stable.
The INE reveals that, from January to November 2023, a total of 353,633 mortgages were granted for the 550,215 property purchase transactions registered – a total of 64.81%, meaning 35.19% of homes were snapped up by cash buyers.
And although mortgages were involved in 71.5% of property purchases in 2019, before the pandemic forced a dramatic slowdown in sales – meaning 28.5% were bought without a loan – the number of transactions was lower than in 2023, despite the Euribor increase.
INE figures show that 505,467 residential properties were sold in 2019, involving 361,291 mortgages.
Estate agencies have reported a 'notable cooling off' in 'buying fever', although the figures appear to show differently – more homes sold, but with cash purchases gradually gaining ground.
How the Euribor has evolved
The interest rate set by the BCE for all countries using the common currency – the euro – first rose above zero in April 2022 after six years and two months in negative figures, but the change was not dramatic – from the record low of -0.502% in December 2021, it had increased to 0.013%, meaning the difference in monthly repayments to the average borrower was just a few euros.
But within eight months, it had broken the 3% barrier for the first time since December 2008.
Another seven months on would see the 4% frontier shattered – July 2023 closed on 4.149%, and October brought a new record of 4.173%.
Prior to 2023, the last time the Euribor was above 4% was in November 2008, after five months above 5% - including the highest-ever figure of 5.393% in July that year – and, from that moment on, went into a drastic downward spiral.
Before the 2022 rises, the last time the Eurozone interest rate was 2% or more was December 2011, and it remained under 1% from August 2012 for almost a decade.
An unprecedented move to drop the rate into negatives for the first time in the history of the euro came in February 2016, which closed on -0.008%, leading homeowners and consumers with personal loans and credit cards to seek answers to questions they never thought would arise: If interest on a mortgage is not just nil, but lower than nil, does this mean the lender pays you, rather than the other way around?
Naturally, the answer was no, since banks do not offer mortgage interest rates at exactly the same figure as the Euribor – it will always be 'Euribor + X%' - and, even if they did, negative interest would simply be applied as 0%, not as a discount or rebate.
Could it all go back to how it was?
The BCE opted to increase interest rates once rotating chairman Mario Draghi passed the reins to Christine Lagarde, former head of the International Monetary Fund (FMI), at around the time of the Russian invasion in Ukraine.
This conflict caused an upward spiral of inflation within the Eurozone – and, after years of struggling to get inflation to rise to the desired 2.5% target, the BCE was now grappling with this figure being suddenly surpassed and then multiplied.
Although Eurozone inflation hovered at around 1% over the latter half of the 2010s, only occasionally peaking at near 2%, it shot to 10.6% in October 2022, and repeatedly soared above 8% between December 2022 and June 2023, with some individual countries experiencing extremes of over 12%.
The trend has reversed dramatically, with inflation in freefall over 2023 and, even with a slight rise in December, still ended the year on 2.9%. It currently sits at 2.8%, meaning interest rates do not have to go up sharply at the moment, but the estimated month-end average for February 2024, at 3.621%, is still higher than January's 3.609%.
And the BCE has been warning for months now that it cannot reduce interest rates significantly 'any time soon', meaning we all may have to get used to higher mortgage payments for a few more years.
It would seem unlikely that the Euribor will fall to near zero, let alone negative figures, in the foreseeable or even longer-term future, given that its doing so was in response to a global recession that started in 2008 and reached its most severe in 2012.
Any reductions are likely to be small, and buyers needing a mortgage should budget for the Euribor staying within the 3% bracket for the medium term: Until the BCE can be confident that the recent plummeting inflation figures are here to stay, it will not risk any major interest rate cuts.
Related Topics
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