Structural Change in Spanish Mortgages

Partly caused by the banning of the minimum interest rate clause (la clausula suelo) in Spanish mortgages (see my earler article) there has been a dramatic shift from Base Rate Plus mortgages to Fixed Interest mortgages. At the end of 2015 Fixed Rate mortgages represented less than 10% of the total. By mid 2018 it was 40%.

This has been accompanied by a decrease in the average interest rate charged due, in part, to fiercer competition between financial institutions. Wheres in early 2009 the rate was 5.5% by Autumn 2018 it has dropped to 2.6%.

With the recovery in the economy and increasing property prices, there has been a commensurate increase in the number of mortgages granted which have grown steadily since late 2013. At around 30.000 per month they are a long way from the heights of the boom but the new law on mortgages whereby the costs are switched from the borrower to the lender is expected to boost the growth considerably. This is likely to accelerate the annual growth in property prices which stood at +7.2% for the thrird quarter of 2018.

Recently published data on the number of mortgages conceded by financial institutions continues to show a modest but sustained upward trend as the graph from Idealist below shows.

Rock bottom was hit at the end of 2013 but by late 2018 the number of mortgages granted, although a long way from the giddy heights of the boom years had returned to the levels of mid-2011.

Whether this growth will be maintained is uncertain as, although the economy is growing well, recent changes in legislation affecting the costs that banks must bear when conceding mortgages may place a brake on the market until these institutions work out how best to make money in a new environment.