August 2023 Spanish lending figures
The month of August saw little change to the downward trend for Spanish Mortgages.
Since January volume of new lending in Spain has decreased.
Economic pressures having an affect
Economic pressures worldwide. High interest rates. Job insecurity and inflation has dampened demand. Internally in Spain with the added pressure of another election looming. Politically it is in a bit of disarray. The other factors all affecting, the non-resident mortgage market.
Interest rates in Spain
Fixed rate mortgage product types in Spain remain at reasonable rates. However high in comparison to 2021/2. Borrowers fixed into long term rates at 2.5% will be very happy at this moment.
Currently fixed rates for mortgages in Spain can be obtained for up to 20 years at an average of 4%. As a long-term rate this is acceptable. However, borrowers used to years of lower rates are apprehensive about fixing at 4% for the full term.
Deciding on the right mortgage product
Unlike the variable rate redemption penalties are higher. Up to 1.75% first few years. Followed by 1.5% of capital overpaid for up to 10 years. Therefore, redeeming or reducing a Spanish loan is more costly. These redemptions are only applicable if the Bank in Spain makes an interest rate loss. With the current interest rate that is now foreseeable.
If rates fall in the shorter to medium term. It is very possible variable rates will fall below the fixed rates on offer. Spanish Banks have reduced margins above Euribor. From an average of 2% above top 1.5%. In an effort to keep up volumes. Also prevent continued downward trend for Spanish mortgages.
Should Euribor’s drop to 2%. From the 4.149% of this month. Then the variable rate will be 3.5%. With the possibility of being even lower.
Non resident borrowers
For non-resident mortgages. Where the borrower is not paid in Euros. They must also consider currency exchange rate fluctuations. Fixing at least the rate removes one variable.
Fixed rate Spanish mortgages still provide long term certainty. It is questionable when and for how long we will experience a period of low rates. If however the borrower knows they will make overpayments. Or believe rates have stabilized a variable rate may in fact be a better option for them.
Mixed rate products
A couple of lenders in Spain now offer mixed rate products. For those not willing to commit to a long term fix this product might be ideal. Allowing for a shorter-term fix. During the next few years. Whilst there remains volatility. But providing the opportunity to take advantage of future rate drops. Also removing any redemption penalty at that point.
The other consideration is that if they offer fixed rates. A lender must provide the borrower opportunity in the future to move from variable to fixed. The same is not true the other way round.
August lending data in Spain
August’s figures from the INE saw 28.344 new loans constituted. This was 22.7% down on same month of 2022. Capital lent at 3.916.326k was down 26.2%. Average loan sizes at 138.171, reduced by 4.6%.
When looking at the previous month of July. Numbers of loans was down 3%. Capital lent down 6.6% and average loan size reduced by 3.7%.
Capital designated for buying a home, made up 58.8% of all new lending. This is the first time in many months it has fallen below 60%. The housing market is therefore being hot hard.
Interest rate averages from the INE data look to be nonsense. The average rate over 24 years for home loans was 3.25%. How this is possible when for months the Euribor has been above 3.5% remains a mystery. According to the INE figures the average variable rate was 2.89% and the average fixed rate 3.54%.
Only 2 regions saw more lending in August over July. These being The Canary Islands and Murcia. Both work of relatively small volumes. Madrid was hit hard in the month being down over 30%. Same for Catalunya.
Spanish lenders saw another month of reducing mortgage books. With 32.042 loans cancelled por redeemed. Loss of profitable add on products and low margins will have an affect on profitability in the short term.