Demand for mortgages in Spain weakened sharply in the third quarter of 2026, according to the Bank of Spain, raising fresh concerns about the outlook for the housing market as interest rates rise and buyer confidence deteriorates.

The latest Bank Lending Survey, published by the Bank of Spain, reveals that mortgage demand suffered its sharpest quarterly deterioration in three years between July and September, with Spanish banks reporting a net decline of 40%.

This was significantly worse than the eurozone average of 27%, suggesting that the Spanish mortgage market is facing particularly strong headwinds. idealista/news

What does the 40% decline actually mean?

The headline figure needs some explanation. It does not mean that mortgage applications fell by 40% in absolute terms.

The figure is a net balance from a survey of banks reporting whether demand increased or decreased. A negative balance of 40% indicates that significantly more banks experienced falling demand than rising demand.

Nevertheless, it is a clear warning signal, especially as it represents the biggest deterioration in three years.

Higher interest rates and weaker confidence

The main culprit is rising borrowing costs. The European Central Bank raised its benchmark interest rate twice between June and September, taking it to 2.5%.

Higher mortgage rates reduce purchasing power and make buying property less affordable, particularly after several years of strong house-price inflation.

But interest rates are not the whole story. Banks also cited worsening property-market expectations as a factor depressing mortgage demand. Across the eurozone, declining consumer confidence added to the weakness.

This suggests that the slowdown is not simply a question of affordability. Buyers may also be becoming more cautious about the direction of the market.

Banks expect further weakness

The outlook for the final quarter of 2026 is hardly encouraging.

Spanish banks anticipate another deterioration in mortgage demand, with a negative net balance of 30%. They also expect lending criteria to become more restrictive.

Across the eurozone, banks anticipate an even sharper deterioration in demand, with a negative balance of 36%, alongside tighter mortgage lending conditions. idealista/news

What does this mean for the Spanish property market?

Mortgage demand is an important leading indicator of housing-market activity. A sustained deterioration would normally be expected to feed through into fewer mortgage approvals and, eventually, fewer property transactions.

The latest figures are therefore consistent with other signs that the Spanish housing market is losing momentum after a period of exceptionally strong activity.

There is an important distinction, however, between slowing sales and falling prices. Housing transactions can weaken well before vendors adjust their asking prices, especially in markets where the supply of properties remains constrained.

Nor should the survey be confused with actual mortgage completions, which can continue rising for a time even as new demand weakens.

For property owners considering selling, the message is worth taking seriously. Prices may still be rising, but financing conditions and buyer sentiment are becoming less favourable.

The Spanish property market is not necessarily heading for a slump, but the latest mortgage figures add to the evidence that the balance is gradually shifting away from sellers. Find out more about conditions for sellers in SPI’s guide Is now a good time to sell property in Spain?