Spain’s housing market is showing no signs of cooling down, with Fitch Ratings predicting property prices will climb between 6% and 8% this year. The sharp uptick comes despite ongoing concerns over sluggish investment and a persistent mismatch between housing supply and demand.
Supply struggling to keep up
In its latest Iberian Mortgage Market Performance Monitor (April 2025), Fitch warns that both public and private investment in new residential developments remains inadequate to ease Spain’s growing housing crisis. The demand for homes continues to outpace supply, placing upward pressure on prices despite government efforts to expand housing availability.
The rating agency argues that building a robust supply of social housing and streamlining the construction process will be critical to rebalancing the market. But current policy measures, it says, are unlikely to move the needle.
Limited policy impact
Spain introduced 12 measures earlier this year aimed at boosting housing supply, including tax breaks and guarantees for landlords. Meanwhile, Portugal unveiled tax reductions and deed fee exemptions to support homeownership. However, Fitch believes these initiatives will have only a “limited impact” on actually increasing the number of available homes.
“Only around 10% of completed housing in Spain between 2020 and 2024 was designated as affordable or subsidised housing,” the report states—significantly down from 40% in 2012. The volume of social housing across Spain and Portugal is now just 2% to 3% of their total housing stock, considerably below the eurozone average of 10%.
What’s fuelling the price surge?
A mix of positive macroeconomic signals is supporting the housing market: robust job markets in both Spain and Portugal, expectations of interest rate cuts, and an influx of non-resident buyers—many of whom are willing to pay well above local market rates—all contribute to pricing momentum.
Fitch has also upgraded Portugal’s projected house price growth to between 8% and 10% for 2025, following gains of 6% to 8% last year. Spain’s previous forecast was a more modest 4% to 6%, highlighting the upward revision based on current trends.
Accessibility stretched to breaking point
Worryingly, the report forecasts that housing affordability will deteriorate further, especially in capital cities. In Madrid and Lisbon, the ratio of house prices to household income is expected to reach eight times the average salary—well above the national average multiplier of six.
Mortgage activity remains strong
Despite higher prices, mortgage lending is expected to keep growing. The number of new mortgages increased by 19% in Spain and 34% in Portugal in 2024, spurred on by improved macroeconomic conditions and the lingering appeal of long-term fixed rates.
In Spain, more than half of new mortgages in 2024 were fixed-rate loans — a trend that’s likely to continue under a looser European Central Bank (ECB) interest rate policy. Portugal, on the other hand, still leans heavily toward variable-rate loans, reflecting their current financial attractiveness to borrowers.
Outlook for 2025
The long-standing issue of housing undersupply remains firmly on the table for 2025. While price growth may benefit owners and investors in the short term, squeezed affordability and limited access to housing pose policy and social challenges that no government can afford to ignore.
Unless investment scales up significantly—especially in social and affordable housing—the chorus of warnings from experts like Fitch is likely to grow louder, not quieter.
