An average household in Spain already allocates 39.2% of its gross income to paying the fees associated with the purchase of its home. It is the highest mortgage effort rate since 2011.
These are the latest data from the Bank of Spain belonging to the third quarter of 2023. They show that in addition to allocating the entire gross salary to the purchase of a home, an average family should give up the entire income of 7 and a half years.
What makes the mortgage effort have risen so much? How is this making it harder for people to apply for a mortgage?
The first of the variables that directly influence the installments of a mortgage loan are the interest rates applied to them.
The European Central Bank (ECB) began to implement a restrictive monetary policy in the euro zone in 2022, with the aim of curbing demand, attacking inflation and avoiding the consequences that this entails for the market.
The average interest rate on new mortgages in Spain was 4% at the end of 2023, according to the Bank of Spain. This makes the installments of an average mortgage almost two hundred euros more expensive than, in 2021, when the average interest rate recorded was 1.6%.
One might expect that a restrictive monetary policy would curb market demand and therefore reduce house prices. This is what is happening almost throughout Europe.
In Spain, however, the price of housing consolidates a solid and regular increase, and specifically in population centers where demand – local and foreign – is greater.
It presented a positive annual variation of 0.6% in the third quarter of 2023, compared to the same period of the previous year, as published by the Bank of Spain. The variation had been negative in the eurozone as a whole (-6.7%), and was especially pronounced in countries such as Germany (-15.3%), the Netherlands (-11.5%) or France (-7. 2%). Even Italy presented negative variations (-3.6%).
The rise in both housing prices and interest rates, we said, makes the mortgage effort greater. Consequently, fewer and fewer people meet the conditions that banks impose for granting a mortgage.
Housing sales data confirm this trend of declining demand. Sales signed before a notary according to the Ministry of Housing and Urban Agenda had decreased by 15.9% in the third quarter of 2023, compared to the same period last year. In Barcelona and Madrid, the variation had been -18.2%.
The shortage of new construction, unable to satisfy demand, is also noticeable: sales of newly built housing fall even further, by 21.2%.
Not only have financial institutions restricted their financing conditions, but fewer families can access mortgages because they are outside the profile with which banks are willing to work.
