SPANISH MORTGAGE MARKET IN Q2 2020: Interest rates down, and new lending hammered by Covid-19, but investors are still out there

spanish mortgage market q2 2020

A summary of the Spanish mortgage market data released in the first quarter of 2020 – interest rates, mortgage costs, and new mortgage lending volumes in Spain – to give you an idea of what’s going on in the Spanish mortgage market, which plays a big role in the housing market.

Euribor / base rates for Spanish mortgages

12-month Euribor, the base rate used to calculate interest payments on most mortgages in Spain, ended the second quarter on -0.147 as a monthly average in June (chart above), compared to -0.19 the same month a year before, meaning it was almost 23% higher than it was 12 months before.

As a result, borrowers in Spain with annually resetting Spanish mortgages based on Euribor would have seen their monthly repayments rise by around €2 per month for a typical €120,000 loan with a 20 year term.

But as you can also tell from the chart above, the  upward trend in Euribor we have seen since it bottomed out in August 2019 turned sharply down in May and June, no doubt as a result of the coronavirus crisis and the ECB’s reaction to it. 

The next chart illustrates the dive in interest rates since Covid-19 came to town.

euribor change in Q2

What next? It’s reasonable to assume that monetary policy will be loose for some time to come, as the EU uses the ECB to provide crisis liquidity that might be politically difficult through other channels. We are in completely uncharted territory (once again), but I think it’s safe bet there won’t be any monetary hawks pushing for a rise in interest rates whilst this pandemic is still raging, nor perhaps, for a long time after.

Let’s enjoy a few charts looking back further, just to remind ourselves how far from normal the new normal is.

Euribor over 5 years

euribor over 20 years

New Spanish mortgage lending in Q2

The Association of Spanish Notaries never breaks into a sweat when it comes to providing timely data, which is why more than halfway through July we only have data for April and May, so that will have to do. But it’s enough to give us a rough idea of what happened in the quarter.

New mortgage lending fell 56% in April and 44% in May, with 10,906 new loans in April, and 15,325 in May, which doesn’t come as a big surprise considering the country was in lockdown for most of that period. If anything, it’s a surprise that any new mortgages were signed at all in the period. I thought the notaries were all closed. Apparently not.

spanish mortgage lending change in may 2020

In May, the average new loan value was €147,459, up 11.2% compared to a year before, so what mortgages were signed had a higher value. That’s the data, but I’m not sure we can read much into it. 

There’s a pandemic raging, economic activity has plunged, and the Spanish mortgage market is just part of the story.

So what?

Cearly interest rates are going down, and new lending took a bit hit, but that doesn’t mean the market is dead. Far from it.

One source of annecdotal data I trust are the specialist brokers Mortgage Direct, who are experts in sourcing mortgage deals in Spain, especially for foreign investors.

Founding Partner Katherine Walkerdine tells me that “In June, we broke the record again and our enquiries were 33% up on May (which was our busiest month ever). This month we are seeing a similar number of enquiries to May, so no slow down. The conversion rate from enquiry to initial sign up is still very high.”

The following comes from Mortgage Direct’s latest news letter:

May 2020 was Mortgage Direct’s busiest month ever with regard to the number of new client enquiries received, and many estate agents across Spain have confirmed that they also have had a very strong month with new enquiries. Of course, we don’t know how many of these enquiries are from clients who would have approached us anyway had it not been for Covid-19 so it remains to be seen if this increased activity will continue but nevertheless, it’s a very encouraging sign.

One important point is that these enquiring clients are committed buyers and are signing up for our services. We mentioned last month that our conversion rate (from enquiry to sign-up) had dropped by a half which was to be expected. We’re pleased to confirm that the number of clients wanting to start the official mortgage process now is almost back to pre-coronavirus levels. This is extremely positive news for the foreign market in general given there are still some restrictions in place for people traveling to Spain.

It looks to me like Mortgage Direct are gaining market share in a declining market, but it just goes to show that success is possible even in challenging times. It also shows that there are still plenty of people out there for whom now is the right time to invest.

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