Mortgages, whether at a fixed or variable rate, will no longer increase this new year and it is expected that they will become cheaper as the months go by. This is due to the drop that the Euribor is experiencing, the reference index for most home loans in Spain.
Until October, the last month with figures from the National Statistics Institute (INE), 323,988 housing loans have been signed. In the same period of 2022, the figure amounted to 393,730 mortgages, so the number of signatures has decreased by 17.7%.
This drop is caused by the rates of the European Central Bank (ECB). The monetary institution has gone so far as to increase the price of money up to 4.5% in 2023, although it already stopped the rate increase in the last quarter. And if rates rise, so does Euribor, which is the interest at which banks lend money to each other.
Mortgage cost
With these values, the cost of mortgages has skyrocketed. At the end of 2021, according to data from the Bank of Spain, the APR was 1.5%. In 2022, with the Euribor rising, housing loans closed at an APR of 3.12%. And finally, 2023 started its APR at 3.37% in January, standing at 4% in the last part of the year.
This 4% APR is expected to decrease, both for fixed and variable loans. This is because banks are already making their commercial offer cheaper and because, if the Euribor goes down, so does the variable rate.
The evolution of the Euribor
The Euribor this last year began rising in the first two quarters, and then stopped at around 4-4.1% between June and November. In December the trend was broken, and it registered the largest drop since 2009, leaving behind 4% and falling to 3.68%.
What experts’ sense is that it will continue to decline because the ECB’s rate increases have already come to an end and the first cuts will be seen in 2024. Therefore, in this drop in the Euribor, all new mortgages will be cheaper. Banks cannot maintain a commercial offer above 5% interest in the fixed rate when the Euribor is already lower than 4%.
This is why entities have already begun to lower the interest on their fixed rates. The variable rate also becomes cheaper as the index falls.
Quotes
Regarding live mortgages, these are still experiencing an increase in their fee due to the annual review, since the Euribor is now higher than it was a year ago. An average mortgage of 150,000 euros, for 25 years and at an interest rate of Euribor plus 1% differential, with annual review, had an average payment of about 793 euros with the 3.018% that the index registered in the last month of 2022. This is equivalent to 9,519 euros per year.
Now with the Euribor of December 2023, despite the monthly decrease, the average monthly payment for that same mortgage remains at about 849 euros, which is 10,188 euros per year, this means about 56 euros more per month, 672 euros more per month annually.
However, what is expected is that, starting in the second quarter, if the Euribor continues to fall, reductions will already be seen in mortgage payments with annual review, which are usually the majority.
Homes without the need for financing
As long as access to credit remains limited and rates continue to make loans more expensive, demand for mortgages will continue to slack. One thing is the demand for mortgages, and another is the demand for housing. Since, although both generally go hand in hand, in this case the drop in mortgage applications will translate into an increase in homes purchased without the need for financing.
In addition to the fact that we are in a context of high interest rates, compared to just two years ago, financial institutions, in general, do not grant 100% of the loan, so to access a mortgage a degree of savings that not everyone has.
The demand profile is different, since the percentage of buyers with a higher income per household increases and the purchase of housing by those households with an average income of less than 2,000 euros per month is significantly reduced.
The mixed type is once again a star product
These always existed but were never a popular option in Spain. At the beginning of 2023, mixed-rate mortgages began to gain ground, and in 2024 they will continue to be the star product.
Mixed mortgages (with initial fixed terms of 3, 5 or 10 years) have been the revelation of this year and will most likely consolidate as the most used product during the first quarters of 2024. Until now, the mixed type was a minority option since it does not even appear in the INE statistics. That is, the mixed type is a combination between the fixed and variable type. These mortgages begin by offering a fixed interest rate (generally between 5 and 20 years, to choose from) to change to a variable interest rate referenced to Euribor for the rest of the life of the loan.
This change in trend will modify the behaviour of mortgage portfolios in the future, making the Spanish market begin to resemble that of other European countries such as Italy, Germany or even the United Kingdom, where the market share of subrogation or changes of bank is higher than that of mortgages for sale.
Currently, fixed mortgages are very expensive, so we still do not recommend that the consumer signs a fixed mortgage above 3%. As an alternative, the mixed mortgage is offered, with reasonable fixed initial rates up to 2%.
