A downturn is expected in the Spanish property market due to the rise in interest rates and tighter credit conditions, which could cause property prices to stagnate this year.
Research from ING and its economist Wouter Thierie says a crash like the one seen during the financial crisis seems unlikely. The market is still expected to outperform the eurozone average thanks to robust demand.
Mortgage rates to rise further in 2023
Data from ING explains the 1-year Euribor rose from -0.5% on 1 January 2022 to 3.5% at the end of March, leading to a significant increase in mortgage lending rates. Mortgage rates are expected to rise further in the first half of 2023.
The gap between Euribor and mortgage rates has narrowed significantly recently, suggesting that mortgage rates have yet to catch up, with fixed rates posing the biggest upside risk.
According to the ECB’s latest Bank Lending Survey, conducted before the issues in the banking sector, Spanish banks were already planning to tighten lending conditions in the first quarter of this year. The recent turmoil will further reinforce this trend. In addition, we expect the ECB to raise interest rates further in the coming period to curb inflation.
ING assumes the ECB will raise policy rates by 25 basis points twice before pausing. Consequently, all these factors could lead variable mortgage rates to exceed 4% in the second half of the year, while fixed rates could rise to 5%.
Variable-rate mortgages on the rise again
Since 2015, the share of new fixed-rate mortgages has risen rapidly to more than half of all loans in 2021, from less than 5% before. Many homeowners took advantage of low interest rates to secure their borrowing costs, especially in view of the uncertain outlook and expected further interest rate hikes last year. In July 2022, three out of four mortgage loans had fixed rates, but this trend seems to have reversed since then.
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