Spain’s housing market recovery will lift prices 5% this year say international ratings agency Moody’s.

Spain’s housing market is recovering to the tune of the overall econimic recovery the country is undergoing after years of crisis, with forecast GDP increase of around 3% this year, one of the highest rates in the EU.

The improving economy coupled with increased mortgage lending at low interest rates will increase demand for Spanish housing and turn prices around, forecast Moody’s, who expect the average national price to increase 5% this year (after 8 years of declines).

Historically low mortgage interest rates are due to increased competition amongst lenders for market share, plus Eurozone base rates that have now been negative for 5 consecutive months.

Mortgage default rates will also continue improving, say Moody’s, with the rate below 5% since December. Lower mortgage defaults are good for bank balance sheets and make them more likely to lend to new borrowers.

Despite the improving picture for the Spanish property market, there are still risks to bear in mind, in particular the international economic situation that could still expose the large amount of real estate assets banks have on their balance sheets were a recession to be imported from abroad.

“Banks should accelerate the sale of these types of assets to avoid an excess of supply reducing prices in the medium to long term,” say Moody’s, quoted in the Spanish press.