Valencian Real Estate Market to Hold Its Own Despite Rising Interest Rates

Valencian Real Estate Market to Hold Its Own Despite Rising Interest Rates

The Valencian mortgage market will not be able to avoid rising interest rates and other economic consequences of inflation. Data for April indicate a slowdown in the pace of loans for real estate purchasing. The number of mortgage agreements concluded decreased by 22.4% compared to March and by 7.1% compared to a year earlier. April was the 1st month when an average Euribor (the indicator to which most mortgages in Spain are pegged) closed in positive for the first time since 2016.

The market closed this month with 3,377 mortgages in the Valencia region, according to data released by the National Statistical Institute (INE). Their capital amounted to €353,340,000. In quantitative terms, the volume of loans decreased by 22.7% since March, but increased by 3.4% year on year.

The fact that the number of concluded mortgage agreements in the Valencian market fell by 7%, although the national average continues to grow, cannot but be surprising. According to the same statistics from INE, the volume of issued mortgages in Spain as a whole increased by 4.5% year on year. This means that the market continues to grow, but at a slower pace compared to previous months.

However, it is still too early to judge what effect the Euribor increase will have on the Valencian mortgage market in the long term. Speaking of the sector of Alicante, which is one of the most dynamic in terms of sales and purchases, API (Association of Real Estate Agents of Alicante) representatives believe that the increase in interest rates predicted for this year will not have a significant impact on the local market. It is currently going through a "highly dynamic" period.

Recent announcements by the European Central Bank and the US Federal Reserve to raise interest rates will indeed increase the cost of mortgages. However, the API expects it to be negligible in most cases.

The President of the API Association, Marife Esteso, made the following statement: “Most of the mortgages currently being processed are fixed rate, so the increase will have no effect on these operations. Also be aware that some buyers will start depreciating capital to lessen the impact of the rate hike on their mortgage payments.”

In fact, almost 70% of the mortgages that are currently being processed are fixed rate. It should also be noted that Alicante is a province of the Valencian Community, in which most transactions are made without a mortgage (about 55% during the 1st quarter of this year).

Therefore, the organization believes that local housing will retain its investment attractiveness, despite some level of uncertainty. “We are seeing demand for rental property far outstrip supply. Thanks to this trend, investors who invest in residential units can expect high returns,” Esteso concluded.

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