Housing Loan Market: New Realities
Over the past year, interest in mortgage loans has grown significantly in Spain. Demand for property loans has reached its highest levels in a decade. At the same time, borrowing costs remain among the lowest in the European Union. Despite this, the pace of housing transactions has started to slow down. According to notaries, the number of operations declined for the second consecutive month in August. However, the number of new mortgages continues to rise, though not as quickly as before. More than 21,000 contracts were signed in a month, up 3.3% compared to the previous year. This is the smallest increase in the last year and a half.
Reasons for Growth and Banks’ Response
The current market situation is explained by several factors. Firstly, housing prices in the country have reached historic highs. Secondly, the average mortgage rate stands at 2.66%—one of the lowest in the Eurozone, second only to Malta. For comparison, the EU average is 3.3%. The euríbor index has stabilized around 2.18%, whereas two years ago it exceeded 4%. This makes monthly payments more affordable for new borrowers.
The demographic situation is adding additional pressure to the market. Around 500,000 new residents arrive in Spain every year, driving up demand for housing. However, the supply of new builds is not keeping pace with these growing needs. Meanwhile, banks have entered a price war, offering 30-year fixed-rate mortgages below 2%. This policy has reduced returns on lending products and forced banks to toughen their client selection. Currently, one in five mortgage applications is rejected, marking the highest rate among major European markets.
Changes in bank strategies
Amid shrinking margins, major banks are adjusting their approaches. Santander cut its mortgage issuances by 11% in the third quarter but aims to boost its market share to 15–20%. CaixaBank, despite seeing its share of new loans drop to 25.6%, increased its total mortgage portfolio by 39% to €14.4 billion. Bankinter and Unicaja also posted double-digit growth, though they lagged behind Kutxabank. At the same time, BBVA prioritized profitability over volume, reducing its share to 14.19% and slashing new loan issuance by 7%.
In a highly competitive environment, fixed rates are becoming increasingly popular. At some banks, they now make up over 75% of all new loans. Financial institutions believe the period of falling rates is over and expect borrowing costs to rise gradually. The European Central Bank has now kept its key rates unchanged for a third consecutive quarter, which is also impacting banks’ strategies.
Looking Ahead: Opportunities and Challenges
In the coming months, banks anticipate continued growth of their mortgage portfolios thanks to steady demand and attractive lending conditions. However, experts warn that shrinking margins and rising housing prices may put additional pressure on household budgets and reduce banks’ profitability. Further uncertainty comes from the global economic slowdown, rising construction material costs, and potential changes in monetary policy.
The mortgage lending boom continues, but market players understand that sustainable growth is only possible if a balance is maintained between demand, household financial stability, and the reliability of the banking system amid heightened volatility.
