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New mortgage signings drop – and 54% buy homes in cash
Friday, October 6, 2023 @ 10:23 PM

MORTGAGE signings have dropped by nearly a fifth as a result of the greatest leap in interest rates in over 20 years – but debt defaults have not risen, despite the Euribor being at its highest since 2011.

According to the National Statistics Institute (INE), the most recent figures collated are up until the end of July, so the fall in new loans may be higher nearly two months on.

With a record number of existing mortgage holders attempting to renegotiate their loans or shop around for better deals, July 2023 saw a fall of 19% in new signings based upon the same month in 2022.


Mortgage rate rise 'sharpest in 20 years'

A total of 29,223 home loans were taken out in July, for an average home purchase price of €143,000 and a typical interest rate of 3.24% - the highest since August 2016.

This represents a decrease of nearly 7,000 on last July, when over 36,000 new mortgages were contracted.

Back then, interest rates on home loans were on average around 1.92%.

The hike in costs to homeowners is as a result of the Eurozone interest rate, or Euribor, soaring to above 4% when, just a year ago, it was still below zero.

At present, the Euribor for September is 4.2%, having climbed by around half a percentage point since late 2022.

Spanish mortgages are reviewed annually, meaning a variable-rate mortgage is only affected by Euribor figures for the month when their 12-month revision takes place – effectively, all mortgages have a one-year fixed rate as a result.

This means not all mortgage holders will be feeling the impact of the Euribor hike yet – the dramatic rise at the end of 2022 will not have affected 100% of variable-rate loans until the start of 2024.

European Central Bank (BCE) chair Christine Lagarde – formerly head of the International Monetary Fund (FMI) – made the sharp rate increase in a bid to control inflation in the common currency area, which had already started before the Russian invasion of Ukraine but was severely aggravated as a result of it.

This means mortgages in countries using the euro have seen the steepest cost rise in two decades, since the Euribor has never experienced such sudden changes over such a short time.


Fall in new mortgages partly due to lenders' newfound caution

Mortgage signings being down in Spain is not just about affordability, or even as a result of would-be homebuyers deciding to wait until interest rates start to fall again.



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