In just a year and a half, the mortgage market has changed radically. The breakneck rise of Euribor has made mortgages more expensive, not just with adjustable rates but also with fixed rates. The index has risen from -0.5% in December 2021 to 4.1% currently. This made new mortgages €550 per month more expensive. This increase in costs has another impact: the effort level has increased to 40%, which is above the historical average.

Bankinter’s research department, in its fourth quarter investment strategy report, indicates that they estimate Euribor to remain at 4.1% in 2023 before falling to 3.9% in 2024 and 3.4% in 2025 year. The current Euribor rate of 4.1% represents an increase of more than €550 per month for a new mortgage, which currently averages €145,000 in Spain.

An increase in the cost of mortgage loans leads to a decrease in the number of mortgage loans issued. As reflected in the Bank Credit Survey prepared by the Bank of Spain (between July and September), the supply of credit maintained its rate of contraction in the third quarter, while demand fell again during this period.

The reasons for the decline in demand for loans identified as a result of the study are mainly as follows: financing costs, which have increased. For households, lower consumer confidence, increased use of savings and worsening housing market prospects also play a role. Looking ahead to the fourth quarter, banks expect both the supply and demand for credit in all forms to contract again, but to a lesser extent than in the third quarter.

Rising mortgage prices and tightening conditions mean that financing is becoming more prudent, according to Bankinter experts. Over the past 5 years, about half of mortgages have been signed at a fixed rate, “which will reduce the suffering of households and the number of forced sales.” Except, number of mortgage loans exceeding 80% Credit for evaluation, That is, the percentage of the value of the house that they give you as a loan, is at a historical low (less than 10% of those currently provided).

Given this situation, Bankinter maintains its estimates of a 2% fall in prices in 2024. While this is a less likely scenario now, at least as long as the labor market remains so strong, rising interest rates represent a temporary disruption factor due to higher funding costs and lower household savings rates due to higher funding costs and strong inflation on basic consumer goods such as energy and food.”

If such a price drop occurs in 2024, Bankinter experts assure that this correction will be “temporary” due to high interest rate conditions. So from 2025, “it should be back on track for growth,” around 1%, as the Euribor rate begins to decline, supported by strong housing market fundamentals: affordability ratios at historical averages, supply and demand balanced, and smarter mortgage financing.

However, they highlight that house prices will hold up “surprisingly well” into 2023, despite the economic downturn, sharp increases in financing costs and a decline in transactions (estimated to be -20% between 2023 and 2024). The main reason lies in the labor market, where good jobs are being created and wages are growing at a rate close to 5% year on year. Thus, They are revising their house price estimates upward to +1% by 2023. compared to the 3% drop they had previously estimated.

The organization’s experts rule out a possible crisis in the real estate market, explaining this by good fundamental indicators of the housing market. Here’s how they explain that housing affordability is in line with the historical average: The ratio between home prices and median household income will end this year below 7.5x (the historical average) and improve further in 2024. The key is wages, which could continue to rise above housing prices..

In addition, they note that there is a balance between supply and demand. Both housing and home building are very balanced at around 100,000 per annum, a level we consider sustainable in the medium/long term. However, there are areas where there is a clear supply shortage due to greater population concentration. These are the main cities, the Mediterranean coast and islands.