This Thursday, the ING bank announced a very aggressive offer: real estate loans for young people under 35 at 100% of the price of housing up to 400,000 euros. On the same day, loan comparison site “HelpMyCash” published a press release titled “Price war in the mortgage market” which states that “12 banks have reduced the cost of their mortgage loans” over the past month. These messages ring true for those who suffer from having their home rent eat up a large portion of their paycheck each month and who don’t have enough savings to pay a down payment, get an affordable loan, and purchase. But the fall in property loan prices hides a paradox: it is also a factor of upward pressure and overheating of prices in an already sharply rising property market.
It’s a double effect. On the one hand, the reductions in the official interest rates of the European Central Bank (ECB) and, consequently, of Euribor represent a direct relief for families with variable mortgages and, in general, favor the access to financing. On the other hand, “they increase demand, especially from households who until now could not buy or found it very difficult,” summarizes Raymond Torres, director of the economic situation at the Funcas analysis center.
“Faced with an offer [de viviendas] rigid, any stimulation of demand has an impact on prices,” continues this expert. “A fall in mortgage prices facilitates price increases and the acceleration of the sector, because it encourages the entry of more capital,” agrees Javier Gil, researcher at the Critical Urban Studies Group.
“I think there is a brutal parallel with the situation before the 2008 crisis,” laments Alejandra Jacinto, lawyer at CAES. “The mantra is exactly the same. It’s not worth paying the rent because it’s very expensive. Or we don’t even have access to it, and what is encouraged is to turn to mortgage credit,” estimates this expert who, beyond private banks, points the finger at public administrations. Both the central government and, for example, the Community of Madrid have deployed public guarantees so that families who do not have enough savings can obtain loans.
The Euribor, known as the mortgage index, recorded a maximum not seen since 2008 in September 2023 at 4.23%. Since then, this benchmark on which the cost of most loans is built has fallen slightly below 2.7% in its daily price. Its decline was reflected in the average cost of new mortgage loans signed each month in our country. According to the INE, on average it peaked at 3.46% in January this year. In July, the last known data, it had already been reduced to 3.17%.
This drop in prices has awakened the pace of real estate loan signings, which has been declining since 2022. In July, the granting of real estate loans increased by 23.5% compared to the same month of 2023, and by 15% compared to June. Of course, the numbers are a far cry from what happened during the housing bubble. For now, the July jump could be considered an anecdote. Or maybe a warning.
From the ‘HelpMyCash’ comparator, they admit that “the mortgage war” that the banks have unleashed has already significantly reduced the price of loans offered in Spain, and they affirm that “the battle has only just begun”. According to its analyst Miquel Riera, “it is more than likely that more entities will join this rebate carousel, given that further rate cuts from the ECB are expected and many will want to end the year with an increase in hiring” .
On the contrary, the economist Ignacio Ezquiaga believes that “financing is not a relevant issue in the current housing crisis, characterized by a problem of access determined by the absence of affordable offer for all social strata and in particularly for young people and immigrants.” As he adds, “in the cities of Madrid or Barcelona or on the islands, prices are so high that partial guarantees are not of much use if you have average or low incomes. Guarantees and this type of bank offer are used by households who sell their old home to buy a better one, which does not solve the affordability problem for first-time buyers.
“A large part of new home sales is done in cash, that is to say money that comes from outside, mainly from foreign investors. This means that as long as this flow continues to enter the Spanish market, the pressure on prices will be much greater, regardless of the action of national mortgages”, introduces Alejandro Inurrieta. This expert does not consider that “at present, the fall in rates is a determining factor in the growth of real estate loans. Because there is a solvency problem and a prudence problem in the Spanish banking sector. And there is a savings problem for potential future mortgage holders.
The predominance of the big “hands” (foreign funds and investors) in the real estate market meets the sole objective of obtaining profitability, in certain cases within short periods of time. This is the “financialization” of housing, and it is a process that has started over the last decade, worldwide, due to the loss of attractiveness of other traditional and conservative investments like housing. public debt – the return associated with the purchase of housing. In Our country it is close to 10% at the end of the first half of 2024, according to the Bank of Spain. A trend that has been exacerbated by the expansion of tourist rentals. “The purchase and sale of housing by foreigners increased from 7% in 2007 to 21% in the first half of 2024,” explains economist Nacho Álvarez in a recent article.
“There is a lot of debate about the scope of interest rates. We believe there is still room for a percentage point reduction in the Eurozone over the next 18 months or so. This is something important, but we are not going back to interest rates [históricamente bajos] that we had a few years ago,” reflects Raymond Torres.
“What a rate cut can change is the construction part. It is a stimulus for construction companies that wish to invest and need financing. It’s a small effect, but positive. Why small? Because the problem of lack of construction has much less to do with interest rates that are too high, but rather with the scarcity of land and the regulations that support the supply of affordable housing, which could really unclog the sector and put an end to the supply shortage,” concludes this expert.
