The second half of 2022 promises to be difficult for the Spanish real estate market. Over the past six months, there have been several new factors in the global economy that can fundamentally change the market.
The world economy, like the Spanish economy, will have to face the consequences of rising inflation, the Russian-Ukrainian conflict, rising prices for raw materials and energy, and rising interest rates on lending. The Spanish real estate market, which is tied to macroeconomic indicators, will have to adapt.
One of the main questions for experts is how the situation with gas and oil prices will develop, what level inflation will have by the end of summer, what will happen to interest rates.
Another factor that will affect real estate investment in Spain is the gradual increase in the Euribor indicator in recent months (Euribor is the average interest rate on interbank loans in euros). The decision of the European Central Bank (ECB) to apply the first increase in interest rates in the Eurozone to 0.5% in 11 years will also play a big role.
Felice Tufano, First Vice President of FIABCI Spain (International Federation of Real Estate Professionals), explains that these factors have changed the structure of the mortgage loan offer. Financial institutions are actively modifying conditions for mortgage loans, mainly by raising interest rates on fixed mortgages and reducing credit spreads for floating-rate loans.
Philippe Laporte, Deputy Director General of the UCI, comments: "Rates on long-term loans have increased by over 150 basis points since the end of December 2021. The same is true for the short-term lending rates of most central banks in the world, including the ECB."
He also recalls that Euribor has responded to the increase in rates from central banks, exceeding the daily rate of 1.1%. Just half a year ago, it was -0.50%. Philippe Laporte adds: "Everything suggests that by the end of the year, this rate will be between 1.25% and 1.75%. In the medium term, there will be stabilization, which will continue until the end of 2023."
It is pointed out that it is necessary to prepare for a paradigm shift in mortgage lending. According to INE, more than 70% of housing mortgages are either fixed or mixed. However, with the growth of fixed rates, it will be possible to observe a gradual shift in the balance to floating-rate mortgages. In May, there was a decline in fixed loans after a record April 2022.