Homebuyers in Spain turn backs on mortgages as half now pay in cash
New data reveals that a staggering half of homebuyers in Spain are paying in cash instead of taking out a mortgage. Why is this, who are these people and what effect is it having on the Spanish property market?
Mortgage repayments in the last couple of years have gone through the roof due to high levels of inflation, not just in Spain, but across Europe.
This is in part due to the round of interest rate hikes that the European Central Bank introduced in July 2022.
Many property hunters in Spain have therefore been dissuaded by the fact that monthly mortgage payments have more than doubled in some places, unable to withstand the volatility.
Homeowners in Spain are now paying an average of €300 more a month (€3,600 a year) on their mortgages, with the spike in demand for fixed-rate mortgages over variable ones giving banks the excuse to increase hipotecas a tipo fijo (fixed-rate mortgages) over the Euribor variable rates.
Banks have also made it more difficult to secure a mortgage because there is a greater perception of risk, as confirmed by the European Central Bank, so many are choosing to turn to other methods to buy properties instead.
As a result, more and more people, if they can afford it, are turning their backs on mortgages and paying for properties in cash.
New data from the Council of Notaries reveals that today, a whopping half of sales are paid for in cash.
Experts warned that in 2023 the price of housing would correct its upward trajectory, however, more than six months have passed and the real estate market has not slowed down.
The cost of homes in Spain has risen by more than six percent year-on-year and although demand has fallen compared to 2022, the figures remain above pre-pandemic levels.
This means that even though the number of mortgages granted has slowed down, the number of sales is holding up.
According to Spain's Council of Notaries, currently five out of ten houses bought are paid for immediately in cash, al contado as it's called in Spanish. Historically, this was only one in three.
Data from May 2023 shows that of the 58,880 home purchases made that month, only 25,754 were bought using a mortgage.
María Teresa Barea, spokesperson for the institution, said: "Undoubtedly, the current situation has encouraged those who can proceed to pay in cash”.
Although the figures from Spain's National Statistics Institute (INE) are somewhat lower, they also show that the purchase of houses without mortgages is on the rise.
Spain's Association of Registrars also forecast that the gap will widen in the coming months, driven by the low remuneration of national deposits, the risks of investing in the stock market, and the fact that Spaniards are looking for a safe investment in housing.
Real estate appraiser Gesvalt agrees that there are more operations without the need for bank loans and rules out an increase in the volume of transactions carried out by means of a donation, exchange and inheritance.
READ ALSO: How interest-free loans between family members work in Spain
Who can afford to pay for a Spanish property in cash?
Data reveals there are several types of buyers who can avoid having to get a mortgage. Around half of these already own a home and use the money from the sale to finance their new purchase.
READ ALSO - EXPLAINED: How to buy a property with cash in Spain
The rest use their savings or ask their family for help, according to the Association of Real Estate Developers of Madrid and real estate giant Fotocasa.
Among those who can pay in cash are foreigners, who according to real estate agency Tecnocasa, currently account for 16.5 percent of all home buyers in Spain.
According to the registrars, foreign demand for housing has maintained pace in the first quarter of the year. British, Germans and French buyers are at the top of the list, with their favourite places to buy being the Balearic Islands, the Valencia region and the Canary Islands.
The last group of people buying in cash are investors, who are looking for a safe investment in bricks and mortar. Despite this, analysts say that more than 90 percent of these sales are made by individuals with residential objectives, even though they may profit from it.
What are the effects of this on the Spanish housing market?
Experts suggest that cash transactions appear to be behind house prices remaining unmoderated.
According to the College of Registrars, the market is also still benefitting from the savings capacity that Spaniards had during the pandemic when it reached a record figure of 17.7 percent of their gross income available (per INE data).
An end to the interest rate hike is still not in sight as the European Central Bank is expected to raise rates by another 25 points on July 27th. This is prompting many to buy in advance of the date, expecting the mortgage rates will worsen once it happens.
The registrars explain that "the proportion of new houses on the market continues to be very low, particularly in large cities, while there are also fewer second-hand apartments available due to high demand."
This encourages prices to rise with an average value of €1,921 per square metre, according to data from the College.
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Mortgage repayments in the last couple of years have gone through the roof due to high levels of inflation, not just in Spain, but across Europe.
This is in part due to the round of interest rate hikes that the European Central Bank introduced in July 2022.
Many property hunters in Spain have therefore been dissuaded by the fact that monthly mortgage payments have more than doubled in some places, unable to withstand the volatility.
Homeowners in Spain are now paying an average of €300 more a month (€3,600 a year) on their mortgages, with the spike in demand for fixed-rate mortgages over variable ones giving banks the excuse to increase hipotecas a tipo fijo (fixed-rate mortgages) over the Euribor variable rates.
Banks have also made it more difficult to secure a mortgage because there is a greater perception of risk, as confirmed by the European Central Bank, so many are choosing to turn to other methods to buy properties instead.
As a result, more and more people, if they can afford it, are turning their backs on mortgages and paying for properties in cash.
New data from the Council of Notaries reveals that today, a whopping half of sales are paid for in cash.
Experts warned that in 2023 the price of housing would correct its upward trajectory, however, more than six months have passed and the real estate market has not slowed down.
The cost of homes in Spain has risen by more than six percent year-on-year and although demand has fallen compared to 2022, the figures remain above pre-pandemic levels.
This means that even though the number of mortgages granted has slowed down, the number of sales is holding up.
According to Spain's Council of Notaries, currently five out of ten houses bought are paid for immediately in cash, al contado as it's called in Spanish. Historically, this was only one in three.
Data from May 2023 shows that of the 58,880 home purchases made that month, only 25,754 were bought using a mortgage.
María Teresa Barea, spokesperson for the institution, said: "Undoubtedly, the current situation has encouraged those who can proceed to pay in cash”.
Although the figures from Spain's National Statistics Institute (INE) are somewhat lower, they also show that the purchase of houses without mortgages is on the rise.
Spain's Association of Registrars also forecast that the gap will widen in the coming months, driven by the low remuneration of national deposits, the risks of investing in the stock market, and the fact that Spaniards are looking for a safe investment in housing.
Real estate appraiser Gesvalt agrees that there are more operations without the need for bank loans and rules out an increase in the volume of transactions carried out by means of a donation, exchange and inheritance.
READ ALSO: How interest-free loans between family members work in Spain
Who can afford to pay for a Spanish property in cash?
Data reveals there are several types of buyers who can avoid having to get a mortgage. Around half of these already own a home and use the money from the sale to finance their new purchase.
READ ALSO - EXPLAINED: How to buy a property with cash in Spain
The rest use their savings or ask their family for help, according to the Association of Real Estate Developers of Madrid and real estate giant Fotocasa.
Among those who can pay in cash are foreigners, who according to real estate agency Tecnocasa, currently account for 16.5 percent of all home buyers in Spain.
According to the registrars, foreign demand for housing has maintained pace in the first quarter of the year. British, Germans and French buyers are at the top of the list, with their favourite places to buy being the Balearic Islands, the Valencia region and the Canary Islands.
The last group of people buying in cash are investors, who are looking for a safe investment in bricks and mortar. Despite this, analysts say that more than 90 percent of these sales are made by individuals with residential objectives, even though they may profit from it.
What are the effects of this on the Spanish housing market?
Experts suggest that cash transactions appear to be behind house prices remaining unmoderated.
According to the College of Registrars, the market is also still benefitting from the savings capacity that Spaniards had during the pandemic when it reached a record figure of 17.7 percent of their gross income available (per INE data).
An end to the interest rate hike is still not in sight as the European Central Bank is expected to raise rates by another 25 points on July 27th. This is prompting many to buy in advance of the date, expecting the mortgage rates will worsen once it happens.
The registrars explain that "the proportion of new houses on the market continues to be very low, particularly in large cities, while there are also fewer second-hand apartments available due to high demand."
This encourages prices to rise with an average value of €1,921 per square metre, according to data from the College.
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