Mortgage applications plunge 30% as cash buyers dominate Spain's property market

Plunging mortgages and record-high cash purchases

Mortgage signings for housing are in freefall—down 30% according to the thread's reference, and 24% in May according to the press—while cash purchases are hitting all-time highs. These two trends are happening simultaneously and point to the same conclusion: the market hasn't stopped, it has simply changed hands. The person buying a home today is increasingly less likely to be a salaried worker seeking bank financing.

The numbers support this thesis without embellishment. Housing mortgages fell by 24% in May, reaching 33,398 loans, with the average interest rate already consolidated above 3%. Notaries report that five out of every ten home purchases are paid in cash, a historic high. Out of 58,880 transactions in a single month, only 25,754 involved a mortgage.

Why are mortgages declining in Spain?

The short answer is the cost of money. With rising interest rates, financing has become more expensive, leaving buyers who need a bank behind. A variable-rate mortgage revised in March at 4% is no longer a rarity; signing a fixed rate today means looking at offers of 3% or more, while variable rates hover at levels that sounded like a joke two years ago. Some point out that some banks are still fishing with a 2.5% fixed rate for the first two years, a strong enough hook to attract many clients.

The second answer is more uncomfortable: there are fewer solvent applicants. With higher monthly installments, lenders have become extremely selective, and the profile that previously qualified for an average mortgage often fails the filter today. The result is not that people have stopped buying homes, but that purchasing power has shifted toward those who do not need a loan.

Five out of ten homes are bought with cash

Cash payments have reached the same volume as mortgages in total transactions. This isn't just due to accumulated savings; it also involves investors, funds with real estate portfolios, and foreign buyers, who represent 16% of cash operations according to a participant in the thread. The yield investor buys to rent, knowing that many potential tenants will be unable to secure financing and will have to continue paying rent month after month.

Part of the analysis suggests the process is moving toward a market without individual owners, with large institutional holders controlling entire neighborhoods to lease them out. This is a hypothesis rather than a proven fact, but it aligns with the data: fewer mortgages and more cash.

Are house prices falling?

It depends on which average you look at. One participant, citing press data, argues that housing prices have been falling since January and are 30% below 2008 levels. Another user provides a contrast from their city: from €2,363/m2 in 2008 to €3,787/m2 in July 2023.

That is the problem with the national average: it is calculated as if the country were a single market. Regions like the Balearic Islands, Madrid, Catalonia, the Basque Country, or Málaga do not behave like Asturias, Galicia, or Extremadura. The phrase that summarizes this trap comes from a neighbor with two Ferraris: between him and you, there is one on average. In tourist towns or areas with high employment, nobody is betting on serious price corrections.

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Rental market: a business for those unable to get a mortgage

If credit is unavailable, renting absorbs the demand. In this scenario, the landlord holds all the cards: they raise the price, they don't lower it, and they wait. Some warn that this dynamic won't correct itself, as the entry of institutional capital into housing is focused on renting rather than selling.

The scenario has precedents worth remembering: there were two good windows for buying, 2010-2013 and 2020-2021, and no one rules out something similar happening in the next decade. By then, the rental stock might be significantly less distributed among private individuals.

The nation of homeowners that was once promised

There was a time when the official slogan was not to create proletarians, but homeowners. The phrase by José Luis Arrese, the Minister of Housing under Franco, is still cited by those who see property as a form of freedom. Decades later, access to property has become a matter of prior liquidity rather than a steady paycheck.

It is important not to confuse the timelines: the real estate adjustment is slow, and anyone waiting for a quarterly crash to buy cheap might be waiting a long time. However, the fundamental shift is already visible in the signed papers.

With mortgages becoming a luxury product and cash buying up half of Spain, one question remains unanswered: if fewer loans are being signed but the same number of apartments are being sold, who will own the country in ten years?