The mortgage market has seen continued decline in November, marking ten consecutive months of decreases. Compared to the previous year, the mortgage firm decreased by 19.1% in November 2023. This downward trend has also impacted the average interest rate, which experienced a slight decrease due to the containment of the fixed rate.

According to data from the National Institute of Statistics (INE), a total of 32,645 mortgages were subscribed in November 2023, a significant decrease from the 40,335 registered in November 2022. Despite this decrease, the number of signatures in November was the second highest in the second half of the year. Additionally, it was 2.3% higher than the October figure and 10.8% higher than the same month in 2019.

María Matos, Director of Studies at Fotocasa, notes that the data reflect a period of stabilization and adaptation to the new high-rate monetary policy. The data from 2023 are similar to pre-pandemic figures, ranging between 22,000 and 35,000 operations.

The year-on-year drop of 19.1% in November is the smallest decrease since July and is below the 20% mark for the first time in four months. Throughout the year, the mortgage firm has seen a total decrease of 17.8% due to the impact of increasing interest rates and the resulting rise in financing costs and decrease in home sales.

In November, the average amount of loans granted for purchasing apartments also decreased by 0.5% compared to the previous year, amounting to 145,894 euros. Consequently, the total borrowed capital decreased by 19.5% to 4,763 million euros. Matos explains that one notable change from the new monetary policy is a reduction in housing demand from typical buyers, resulting in smaller loan requests.

The fixed rate sees moderation

Although the average interest rate saw a slight decrease in November, remaining above 3%, it is the first decrease since the beginning of the year. Specifically, it stood at 3.27% compared to 3.32% in October. Matos suggests that this indicates banking entities are adjusting to the forecast of easing Euribor rates.

The Euribor reached 4.02% in November, experiencing a slight monthly decrease after ten consecutive increases. This could potentially lead to improved negotiations between homebuyers and banking entities, which have been challenging until now. The President of the European Central Bank (ECB), Christine Lagarde, recently acknowledged that the first drops in official rates could occur in the summer.

However, the average interest rate in November remains 0.7% higher than the same period in 2022, reflecting an escalation that hasn’t been seen in eight years. The moderation in the average interest rate is primarily due to the slight decrease in the fixed rate, which was 3.53% in November compared to 3.57% in October.

Currently, 53.2% of mortgage holders prefer the fixed-rate option, while 46.8% opt for the variable rate, which slightly increased to 3.03% in November. Matos predicts a shift towards variable mortgages as financial entities continue to make them more affordable and fixed-rate mortgages tougher. However, due to the still-high Euribor rate, many families prefer the stability of a fixed-rate mortgage to avoid potential future payment increases.

The Finance Minister, María Jesús Montero, made a statement on Thursday stating that the majority of regional governments are against the idea of creating a leveling fund to compensate underfunded communities. This was in response to a proposal put forward by the popular barons of Andalusia, the Valencian Community, Murcia, and the socialist Emiliano García-Page in Castilla-La Mancha. However, Montero has opposed the creation of such a fund in the next Budgets.

Montero clarified that no leveling fund will be created with the upcoming Budgets and denied that this mechanism is included in the government agreement between PSOE and Sumar. However, the agreement does include a commitment to provide public services at the same level as the rest of the State to the underfunded autonomous communities.

The reform of the regional financing system has been pending since 2014 and has proven difficult due to competing interests and lack of a clear parliamentary majority. Four autonomous communities in Spain—Valencian Community, Andalusia, Murcia, and Castilla-La Mancha—have financing per inhabitant below the national average and have proposed a common front for the leveling fund.

In addition to this, María Jesús Montero announced that the Treasury will begin negotiating the forgiveness of part of the regional debt contracted during the 2008 crisis in February. The debt write-offs will be made according to common parameters for all communities and will affect all territories, regardless of whether they have debt with the State.

Montero also revealed that the European Commission has given approval for 340 million euros in pre-financing for the recovery plan addendum, as well as 1,040 million euros in non-refundable transfers for the same concept. The approval of general budgets is a top priority for the Finance Ministry in this legislature.

On Thursday, the Governing Council of the European Central Bank (ECB) made the decision to keep interest rates unchanged. This means that the reference rate for its refinancing operations will remain at 4.50%, while the deposit rate and loan facility will both stay at 4% and 4.75% respectively.

This marks the third consecutive meeting in which the ECB has maintained interest rates, following a series of ten consecutive increases in the price of money. These tightening measures had pushed rates to their highest level in over two decades but were halted at the October meeting.

The ECB had raised rates by 450 basis points during this cycle, which began in July 2022. However, there is speculation in the markets that the ECB may now lower the reference rate, potentially happening this summer, according to analysts at Bank of America.

The ECB’s decision comes in light of the euro zone’s annual inflation rate of 2.9% in December. This is a half a percentage point increase from the previous month and the highest reading since October. However, after excluding energy, food, alcohol, and tobacco from the calculation, the underlying rate decreased to 3.4%.

Additionally, Eurostat confirmed that the eurozone’s GDP contracted by 0.1% in the third quarter compared to the previous three months, when it had expanded by 0.1%. This performance was worse than that of the United States, where GDP increased by 1.3% quarterly, and aligns with the United Kingdom, which also experienced a 0.1% decrease in the third quarter.

The Minister of Housing and Urban Agenda, Isabel Rodríguez, made an appearance in the Congress of Deputies on Thursday to discuss the Government’s plans for housing and urban development for the legislative period. In February, the Government will sign two agreements with the Official Credit Institute (ICO) to launch a line of loans for the construction of 40,000 homes and provide public guarantees for young people and families with dependent minors for the acquisition of apartments.

The objective of these loans, which are part of the European Union’s Recovery, Transformation, and Resilience Plan, is to increase the housing supply and expand the social housing stock. The Minister stated that more than 40,000 homes can be built with this financing, and there is already interest from various autonomous communities and individuals. The loans will be available for both public and private developers, focusing on housing at an affordable price and for social rental.

Expanding the housing stock is a priority for the Ministry, and the Minister emphasized the Government’s commitment to enabling 184,000 homes, with 20,000 already exceeding the target. The Government is also in the process of finalizing an agreement with the ICO to provide public guarantees for young people and families with dependent minors to purchase their first homes. This initiative aims to address the lack of resources and help alleviate the burden of expensive rents.

Additionally, the Minister highlighted the Government’s commitment to expanding the resources for the Youth Rental Bonus and called on the autonomous communities to increase their contribution to this aid. Collaboration between the Government and the communities is essential to ensure the right to housing for all citizens.

The Ministry is also focusing on the development of housing laws, with plans to publish a rental reference price index in February to regulate rents in stressed areas. Furthermore, the Ministry is working on regulating temporary rentals and addressing the issue of tourist apartments in collaboration with the Ministry of Tourism.

The modification of the Land and Urban Rehabilitation Law is another priority for the Ministry, aiming to provide stability, certainty, and legal security in urban development. The Minister plans to create the Housing Advisory Council and the Architecture Quality Council in the first half of the year to provide advisory and consultative support.