SPANISH MORTGAGE MARKET Q3 2020: Recovery after lockdown, but storm clouds are gathering

spanish mortgage market Q3 2020

A summary of the Spanish mortgage market data released in the quarter – 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 quarter on -0.414 as a monthly average (chart above), compared to -0.339 the same month a year before, meaning a negative rate 53% larger 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 fall by around €4 per month for a typical €120,000 loan with a 20 year term.

Mortgage interest rates plunged to an all-time record low in the quarter, building on a trend that began at the end of Q2, and that reversed the previous steady move towards positive rates begun in 2019.

spanish mortgage market Q3 2020
spanish mortgage market Q3 2020

Given the current economic situation brought about by Covid-19 in Europe, where the economic crisis is only just starting, it’s fair to assume that the Eurozone interest rates set by the ECB will remain near record lows for the foreseeable future. The same is true of the US, so there will be no pressure from the Fed to follow suit and raise interest rates.

Spanish mortgage lending in Q3 2020

The latest data is for August, so we don’t have a picture for the full quarter, but the recovery trend is clear. According to figures from the Association of Spanish Notaries, new mortgage lending rebounded strongly in July and August after the crushing lockdown in Q2. New residential lending in August ended up 6.5% higher with 17,567 new loans with an average value of €128,512, down 3.4% year-on-year.

spanish mortgage market Q3 2020

In summary, the cost of borrowing remains low, and mortgage lending is recovering with home sales as the economy opens up after lockdown. However, it is increasingly clear the Spanish economy is embarking on a period of significant economic distress brought on by Covid-19 and government policy. This period will probably be depressing for the mortgage market, with falling home sales, house prices, and mortgage lending. It might also be a good opportunity to buy a bargain in Spain with cheap financing.