Spain mortgage signings drop 14% as credit boom ends

Mortgage signings fall 14% and outstanding balance drops below €500 billion

In the first half of 2023, 266,350 mortgages were signed in Spain, a 14% decrease compared to the same period last year, while the outstanding mortgage credit balance fell below €500 billion. The headline suggests a collapse. However, the figures are nearly identical to those from 2021 and 2019. The boom is fading, and there is no consensus on what remains once it cools down.

Of these transactions, 76% used housing as collateral. Many analysts consider this data, which is not comparable to the record home sales of 2022, to be acceptable. Gonzalo Bernardos, a professor at the Universitat de Barcelona, argues the opposite: he believes credit signing is "plummeting" and banks are missing their targets. The same number, two opposing verdicts. This disagreement pervades the entire issue.

Why mortgages are sinking: Euribor rises from 0% to 4%

The cause rarely disputed is the increased cost of money. The Euribor jumped from 0% to 4%, directly impacting monthly payments. Funcas summarizes it bluntly: the decline responds "mainly to higher loan costs due to increased interest rates." Trioteca adds that rate hikes can accelerate or slow property sales, and currently, they are slowing them down.

Financial institutions themselves admit that households are "now more cautious" and grant credit with greater care to avoid risks. Less demand and stricter filters, in short. Meanwhile, mortgage renegotiations surge, surpassing 4% interest for the first time: in some intermediaries, more than half of the business is no longer new purchases but changes to existing loans. Credit has ceased to be cheap and has become a precision product.

Will housing prices fall?

Here, consensus breaks. Bernardos warns of a gap between the asking prices advertised on portals and the actual closing prices of home sales, predicting declines in both transactions and prices. Funcas expects a slight decrease, around 1%, with a caveat that changes everything: Spain is not a single market, and prices in major urban centers are not falling.

Against this, another thesis repeats: prices hold because supply has dried up. New housing is not being built as it was in 2007, and without product, adjustment does not arrive. The numbers facing any buyer point in the same uncomfortable direction: one testimonial involves someone who paid over €300 for an appraisal and discovered that the bank lends based on that value, not the seller's asking price. The entire operation is calculated on a figure the buyer does not control.

Rental market ignores the downturn

If credit cools, rentals do the opposite. Circulating cases are stark: apartments advertised at €500 two years ago now ask for €700; those going for €600 exceed €800, and those at €800 hover around €1,100. In parallel, attention is drawn to the weight of foreign demand and international funds buying cash, especially in tense areas and the high-end segment, where deals can close in less than 48 hours.

This is the blind spot in forecasts. The drop in mortgage signings measures bank credit, not real pressure on the market. There is alarm among real estate agencies regarding the plunge in foreign purchases in the Balearic Islands, yes, but rents in major cities continue to rise as if interest rate hikes did not affect them.

Baby boomers, pensions, and housing coming to market

There is another warning, this one medium-term. BBVA maintains that baby boomers will have to sell their homes due to low retirement income and calls for a deep pension reform similar to what Sweden and Norway implemented thirty years ago. If this flow of housing materializes, it would add supply just as demand cools.

Everyone looks at the same chart. Some see a healthy adjustment; others, the start of a correction. With renegotiations surging and Euribor settled at 4%, the uncomfortable question remains: if prices do not yield and credit stays expensive, who supports the market?