For homeowners, the last couple of years have been marked by sharp rises in interest rates by central banks. This was something felt not only in Spain but across the continent, and led the Euribor rate to skyrocket and variable-rate mortgages to become much more expensive.
This had a two-fold effect on the Spanish property market: firstly, it made mortgage payments for millions of Spaniards more expensive, and secondly, the high rates put off many people who wanted to get on the property ladder but couldn’t, which in turn pushed them into the already overly-saturated rental market that is also seeing significant price rises.
The average interest rate on mortgages at the end of 2023 rose to 3.32 percent, almost one and a half percent higher than at the end of the previous year. As such, the conditions for signing new mortgage loans hardened, and mixed mortgages skyrocketed to the detriment of fixed and variable loans.
As a result, 2023 saw a real slowdown in the Spanish mortgage market. Until October, the last month of available data from Spain's National Institute of Statistics (INE), 323,988 mortgages were signed. In the same period in 2022, the figure was 393,730, a 17.7 percent drop. Clearly, people were put off by the rate hikes.
Fortunately, 2024 seems set to continue encouraging trends seen in November and December 2023: namely a rate freeze and further possible falls in the Euribor.
In December 2023, the Euribor registered the largest drop since 2009, falling back below the 4 percent threshold to 3.68 percent. Estimates by experts for 2024 point to an easing of the crucial Euribor rate, the interest rate most often used to work out mortgage payments in Spain and to calculate both variable and fixed rates.
READ ALSO: First Euribor drop in 20 months: What will happen to mortgages in Spain?
However, though the falls will of course be welcomed by millions of mortgage holders in Spain, this encouragement should be tempered by the fact even if the Euribor falls further, to levels of between 2-3 percent, as predicted, these are still rates far higher than many mortgage holders were used to.
What will happen to mortgages in Spain in 2024?
So, what does this all mean for the Spanish mortgage market in 2024?
Well, looking at the trends to end 2023, things seem cautiously optimistic. The Euribor had two consecutive slowdowns and has stopped rising, which moderated the mortgage market after the volatility of previous years.
Many banks have already begun to lower the interest on their fixed rates. In Spain you can now find offers below 4 percent with relative ease, especially at newer or online banks such as Evo Banco and Openbank.
Variable rates, too, are also getting cheaper as the Euribor falls. Although interest rates and the reference index for most mortgages are still high (which directly affects those who have variable and fixed rate mortgages), the slowdown of rates, as mortgage experts iAhorro told 20 Minutos, could change the Spanish market and 'resurrect' the fixed rate mortgage in Spain in 2024.
According to the director of Mortgages at iAhorro, Simone Colombelli, 2024 will see fixed rate mortgages be "the great beneficiary" of an eventual, more substantial drop in the Euribor, which is expected to occur in the first part of the year.
READ ALSO: Deadline looms for homeowners in Spain to claim back mortgage costs
Currently, more than half of the mortgages in Spain are variable mortgages, but the increases in the Euribor have turned it into a loan with little demand.
As explained by the iAhorro boss, the rate drops to end 2023 have generated a change that "is here to stay". The possible improvements in the Euribor rate, especially in the second half of the year, could trigger an increase in fixed rate mortgages, something that "will depend on the financial institutions, which are responsible for reactivating the market,” Colombelli says.
If this change occurs, Colombelli feels that the Spanish mortgage market could evolve towards a "French" model where fixed mortgages become more popular. Everything will depend, in any case, on the evolution of the Euribor and interest rates: inflation will, as it has in so many aspects of life in recent years, have the last word.
READ ALSO: How to change from a variable to a fixed mortgage in Spain
All in all, despite the uncertainty it seems safe to say that overall trends to end 2023 suggest that in 2024 it will be possible to find mortgages that are somewhat cheaper than those offered for much of last year, and also that the makeup of market may change. As property portal Idealista has said: "fixed-rate mortgages are defending their hegemony against the push of mixed mortgages, especially those with a fixed term of 3 or 5 years.”
In a sentence: mortgage rates seem set to go down, though they will probably remain far higher than many mortgage holders were previously used to, which could in turn lead to changes in the structure of the mortgage market in 2024.
What is the Euribor?
Euribor is the interest rate most often used to work out mortgage payments in Spain and to calculate both variable and fixed rates.
It is anchored to the interest rate set by the ECB and the rate that banks in the Euro Zone use to lend to each other, so when the base rate goes up, the Euribor does too, which sends mortgage interest rates across the Eurozone rising.
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