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Where’s the mortgage crisis in Spain?

The British press is full of stories about a ‘mortgage crisis’ in the UK, so what about Spain, where interest rates are also rising, and the British have more mortgages than any other foreign nationality?

‘This is ruining people’s lives’: homeowners hit by UK mortgage crisis speak out’ says the Guardian. ‘Home truths: the crushing reality of the mortgage crisis’ says the Spectator. And that’s just today. ‘Mortgage crisis: ‘We can’t pay an extra £1,400 a month’ said BBC News two days ago. It’s an almost daily diet of mortgage crisis stories in the UK press.

What about Spain?  A month ago the Spanish daily El Pais reported that new mortgage lending was down 16% in March and interest rates the highest in six years, causing discomfort for some borrowers. Not a squeak since then from Spain’s biggest daily. When I did a search for “mortgage crisis” in Spanish, the first result in the Spanish media is an article about the mortgage crisis in the UK.  If there is a mortgage crisis in Spain, the Spanish press are keeping it quiet.

UK mortgage crisis

The UK mortgage crisis revolves around the fact that interest rates have gone up to 5%  expected to rise to 6%, and many mortgage borrowers are exposed to rising interest rates in the short term.. The Spectator reports that “some 1.3. to 1.4 million mortgages (out of a UK total of 13.2 million) will move to higher rates sometime this year, and another million next year…interest payments will treble for many…..those who renew their mortgages will confront an average £2,900 a year in additional interest rate payments.”

Spanish mortgage calm

I don’t have comparable data for Spain but I can report that new mortgage lending and refinancing is still strong, mortgage foreclosures are at record lows (chart below) and declining, and mortgage interest rates significantly lower than the UK.

spanish mortgage distress

Let’s start with the health of the overall mortgage market seen in terms of new lending volume. Data from the notaries shows that new Spanish mortgage lending was down 22% in Q1 and 31% in April, though the average new loan value was only down 6%. New mortgage lending hasn’t crashed (yet), just declined from the record levels last year. In Q1 mortgage lending was higher than in 2019, so mortgage lending in Spain is still strong compared to the year before the pandemic (though the trend is accelerating down).

spanish mortgage crisis

What about interest rates? They are lower in the Eurozone than in the UK. ECB base rates (main refinancing operations) have just gone up to 4%, whilst the BOE base rate is already at 5%, expected to go to 6%. 1% can make a big difference in monthly mortgage repayments, especially when house prices and LTVs in the UK are higher than in Spain (though so are incomes).

According to the Spanish national statistics office (INE), new mortgages signed in March had an average opening interest rate of 2.99%, with fixed rates of 3.15% and variable rates of 2.72%. Those rates are still close to historic lows, as you can see from the next chart. Since then, however, base rates have gone up in the Eurozone, of which Spain is a member, so we’ll have to see what the numbers look like in Q2.

spanish mortgage interest rates

“A typical mortgage rate in Spain for a borrower from the UK is around 3.75% fixed for 20 years,” explains Kevin Monger, a founding partner of Spanish mortgage broker Mortgage Direct. “That is likely to increase by as much as 0.5% in the coming weeks, with further increases likely over the summer. Rates have more or less doubled over the last 12 months but are still low for foreign buyers compared to other countries.”

It’s even better for locals, who make up 80% of the market or more. “I found a very good deal for a Spanish friend with 5 years at 2.1% and then Euribor + 0,85%,” says Kevin, who also reports that many people are refinancing on good terms, and banks are actively poaching mortgage clients. Low rates like these might help explain why there are no obvious signs of financial distress.

Another reason why there is no talk of a ‘mortgage crisis’ in Spain might be because 64% of Spanish mortgages signed today are fixed rate, and the fixed term tends to last for many years, if not the full term. Fixed rate mortgages have been close to the majority or in the majority for the last seven years, and many older mortgages already have a lot of capital paid off. So, on that front it’s quite possible that borrowers in Spain are less exposed to rising interest rates than the UK.

spanish mortgage fixed vs. variable rates

And finally, I suspect that Spanish lenders are more conservative than their British equivalents because they were so badly scarred by the monumental real estate crash that started around 2008. The impact of the financial crash on the British property market was short and shallow compared to Spain, where insane lending during the boom inflated a gargantuan property bubble that almost bankrupted the country when it burst. I doubt that Spanish lenders will make the same mistake twice, at least not until the lessons of that crisis have been forgotten, which they haven’t yet. So perhaps Spanish mortgage holders are better placed to withstand rising interest rates thanks to more conservative lending requirements in Spain.

Is there a Spanish mortgage crisis in the post? Perhaps, because rates are still on the rise and at some point we might reach a tipping point, like the UK. But for the reasons explained above that tipping point may lie further out, and we might never reach it. As things stand today there is no talk of a mortgage crisis in Spain, and British borrowers can still get better conditions in Spain than the UK.

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