Interest rate hikes by the European Central Bank (ECB) and the tightening of conditions for accessing financing have led to a fall in the number of mortgages taken out in 2023. Even so, this year is expected to see a change of cycle in mortgage loans, whether they have fixed or variable rates.

Despite the fall in the Euribor in the final stretch of the year, dropping to 3.724% in December, after reaching annual highs of 4.22% in September, 2023 has been a year of slowdown in the mortgage market. Up to October – the last month with data provided by the National Statistics Institute (INE) – 323,988 mortgage loans had been contracted, while in the same period of 2022, the figure rose to 393,730 mortgages. A reduction of 17.7% from one year to the next, which accumulated three consecutive months of falls of more than 20%.

Real estate agencies and the banks themselves, which have advanced data concerning the official statistics, point out that mortgage production has recovered slightly in the last three months of the year, helping to cushion the fall in the mortgage sector. Nonetheless, the uptake on mortgages is expected to have declined by 15% compared to 2022.

Hikes in mortgage interest rates to highs of 3.32% not seen since 2015, together with the tightening of the criteria and conditions applied to grant mortgages due to the fear of default, have slowed down a real estate market in which the number of home sales and purchases has been falling for months, while prices have remained stable.

Improve conditions, settle or cancel

Analysing the historical data provided by the Bank of Spain over the last three years, we see that mortgage costs have shot up disproportionately. While at the end of 2021, the APR was 1.5%, a year later it reached 3.12%, starting 2023 at 3.37% and reaching 4% during the last part of the year.

In this context, many families have tried to improve the conditions of their mortgages, either through their bank, moving the loan to another financial entity or cancelling their mortgage to sign a new one. According to data from the real estate portal idealista, in the last four months of 2023, contracting of new mortgages to improve the conditions of existing mortgages has accounted for more than 10% of the total, exceeding 20% during August and October, four times more than they represented in 2021 and at the beginning of 2022.

Likewise, mixed mortgages have shot up to the detriment of fixed and variable mortgages. These establish a fixed-rate monthly payment during the first years, while the rest of the loan term is determined by a variable interest rate. This type of mortgage loan is very similar to variable-rate mortgages but includes some special conditions.

On the other hand, some households have taken advantage of the rise in interest rates to repay their loans early, either partially or in full, to save interest over the life of the mortgage. Although a priori it is a good idea to take advantage of money saved to repay or reduce a mortgage loan early, everything will depend on the repayment conditions that have been signed in the mortgage contract.

Euribor consolidates a sharp decline

The Euribor closed December at 3.679%, dropping below 4% for the first time in the last six months and representing the biggest monthly fall in 14 years. Four days into the new year, it stands at 3.54%. If it closes the month like this, it would be the fourth monthly fall in a year and those mortgages reviewed every six months will experience a reduction in the instalment.

Although the European Central Bank has not made any official announcement, experts predict that the Euribor, the reference rate for most mortgage loans in Spain, will remain below 4% during 2024. This is based on the prediction that the ECB’s rate hikes have already come to an end and what we would see in 2024 would be the first cuts.

This lower mortgage rate would make new mortgages cheaper. As for current mortgages, these are still experiencing an increase in their annual repayments due to the annual review, as the Euribor is still higher than it was a year ago. Even so, from the second quarter onwards, if this trend continues, reductions will be seen in mortgage payments with annual revisions, which tend to be the majority.

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