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Cash Buyers Losing Ground As Mortgage Lending Rebounds

cash buyer spanish property

The statistics show that cash buyers account for a third or more of all homes sold in Spain each year, a typical sign of market distress. But the situation is improving as banks start to lend again.

The latest data available from the National Institute of Statistics (INE), and the General Council of Notaries, suggest that the Spanish housing market is more or less at the start of a growth trend (at least in some segments), and mortgage lending is on the increase. But cash buyers continue to make up at least a third of the market – a higher level than normal for an advanced economy.

A high level of cash buyers suggest the following:

  • Savers are not getting a good return from the bank, and are moving into property in search of better yields
  • The mortgage market is broken
  • Property prices are low enough for a high percentage of buyers to be able to buy outright with cash

A recent article at the Spanish daily El Mundo reports that INE figures from August 2014 to January 2015 showed that more than a third of purchases were made by cash buyers without a mortgage. During this period over 161,000 properties were sold, while the number of approved mortgages reached 104,825, implying that 35 per cent of transactions involved cash buyers.

But the latest data from the notaries, up to and including February this year, suggests that cash buyers are even more important than that (see chart above). In February 2014 just 37 per cent of home purchases involved mortgage financing, meaning 63 per cent were cash buyers. By February this year, cash buyers had fallen to 56 per cent, with 44 per cent using a mortgage. If these figures are correct, that means the market is still dominated by cash buyers, but not as much as it was, and we are heading towards parity.

In advanced economies mortgage lending is always the engine of housing market demand. As lending expands so does demand, though in Spain high unemployment acts as a break on demand.


El Mundo reports suggest there are three types of cash buyers active in Spain today. The biggest of the three are funds known locally as SOCIMIs (a type of Spanish REIT), using equity to gobble up huge portfolios, and who have made a big impact on the market in the last year or two. They are largely financed largely by foreign funds.

The next group is comprised of small local investors disgusted with the return they get from savings accounts, who can see the housing market picking up, and have started moving cash from deposits to property, as they become less risk averse.

The third group is made up of foreign buyers of second homes, led by the British. They accounted for 26 per cent of demand in the last quarter of 2014, according to El Mundo.

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