The European Central Bank (ECB) has lowered the Eurozone base rate to a historic low of 0.25pc. What impact will this have on the Spanish property market?
There is nothing like cheap money to stoke up demand for housing in countries with a culture of owner-occupiers and investing in property like Spain. And it looks like money will soon get cheaper in Spain, after the ECB slashed its lending rate in half to 0.25pc on Friday, the lowest rate in the bank’s history.
At 0.5pc, the Eurozone base rate was already dramatically low before the latest cut, but that didn’t stop new mortgage lending in Spain from plunging, and mortgage rates from rising as banks charged a higher spread. So what difference will this make?
In the very short-term, nothing will change, as Spanish lenders continue with their agenda of hoarding cash and reducing exposure to real estate. But after five years were are approaching the end of that story, and experts forecast that lenders will start to open up the credit taps a bit in 2014, albeit on a selective basis. Lower base rates will make it easier for the banks to lend.
Liquidity on parched earth
“The decision of the ECB will open the door for the arrival of liquidity in the real estate sector, which will have a better chance of borrowing and building homes,” says Gonzalo Bernardos, a professor at the University of Barcelona and leading authority on Spain’s property sector. “There will be more money more readily available, and the first to notice will be ordinary citizens, potential home-buyers.”
Bernardos expects cheaper money to stimulate sales, but does not forecast a sudden rebound in house prices. “No way,” he says. “Housing will not get more expensive.” All he expects is a “stabilisation” in sales and prices. “Even if there is more credit, the supply of homes for sale will continue to be bigger than demand,” he explains.
Nevertheless, easier money means buyers will put vendors under less pressure to lower prices, he argues. “The expectation that house prices have touched bottom will start to take hold,” he says. “People who can’t buy a house today because they can’t get credit, or it’s too expensive, will be able to do so in 2014.”
If he is right, then 2013 will have turned out to be the bottom of this cycle o the Spanish property market, in volume terms at least.