Mortgage applications increase for first time in two years as home prices soar

DEMAND for mortgages to buy a home has begun to rise for the first time since 2022, despite rates being at their highest levels in nearly a decade.

According to the Central European Bank (BCE), three of the largest economies in the Eurozone – Spain, Germany and Italy – registered an increase in new mortgage applications in the second quarter of this year, after many months of lack of demand due to loans becoming far more expensive.

France, the remaining country in the Eurozone's 'top four' economies, reported no change in demand in the last quarter.

After plummeting demand due to interest rate hikes, applications for consumer loans are now beginning to increase in the Eurozone, the BCE reveals: Forecasts for the second quarter of 2024 in banks across the common currency area averaged around a 6% rise in demand, but latest figures show the reality is nearer 13%, with Spain, Germany and France topping the list.

Spain and Germany also registered a slight increase in business loan requests in the first six months of this year, whilst Italy and France reported a significant decline.

The common currency interest rate, or Euribor, fell below zero for the first time in February 2016, and remained in negative figures until late 2022, when it began to soar at a pace never seen before.

Having topped 4% on some occasions since then, the Euribor closed July 2024 on 3.567%.

Property price rise creates 'affordable housing' crisis in Eurozone 

The BCE report states that falling residential property prices have helped push up demand for mortgages in some parts of the Eurozone – particularly Germany, which has seen year-on-year decreases of around 5.7%, and France, with values dropping by 4.8% – although the opposite has been seen in Spain, where purchase prices continue to climb.

In fact, European Commission president Ursula von der Leyen has announced a working committee will be set up to address a crisis of availability of affordable housing affecting the EU as a whole, and which is becoming particularly severe in Spain.

During the first three months of 2024, home prices rose by 6.4% in Spain on average based upon the same period in 2023, beaten only by its neighbour, Portugal, where property values rose by 7%, according to Eurostat.

Overall, homes in Spain are now 9.9% more expensive than they were a year ago, compared with a Eurozone average rise in this time of 6.4%.

Pre-owned homes, as opposed to new builds, have seen more moderate price increases in Spain, hovering at around 5.8% since the beginning of 2023, compared with rent prices, which have gone up by about 3% - the maximum permitted by the Spanish national government.

Owner-occupied properties in Spain 'above EU average'

Whilst affordable rentals have long been an issue in Spain, especially in big cities – where over 50% of tenants need two full-time salaries to pay their rent – properties let out remain in the minority: In keeping with southern European culture as a whole, ownership continues to be the most popular method.

Eurostat reveals that 75.3% of Spain's population owns the homes it lives in, either outright or with a mortgage – higher than the European Union average of 69.2%, similar to figures in Portugal and Italy, and considerably greater than France's 63.1%.

By contrast, Germany is the only EU member State with more tenants than owners – the latter make up just 47.6%.