Mortgages collapse for the eighth consecutive month but the interest paid on them shoots up to seven-year highs

The mortgage firm deepens its collapse. According to data released this Tuesday by the National Institute of Statistics (INE), the number of mortgage loans signed for the purchase of homes fell by almost 30% in September compared to the same period in 2022, which represents not only the eighth drop consecutive, but also the deepest of the downward streak that the mortgage market has been going through since the beginning of the year. While the granting of financing for home purchases cools, interest rates continue to grow slowly, reaching their highest levels since February 2016.

In the ninth month of 2023, a total of 31,054 mortgages were signed, a figure 29.6% lower than that registered a year before. The decrease exceeds those recorded in previous months. Specifically, in August the signing of mortgage loans had already decreased by 22.7% compared to the previous year and previously in May the drop was around 24%. You have to go back to January 2021 to find a more pronounced collapse in the mortgage firm than that recorded in the last month. “The cooling in the sector is increasingly accentuated as we approach the end of the year,” confirms Ferran Font, director of studies at the real estate portal piso.com.

“Mortgages continue to fall due to the loss of confidence in the housing market,” assesses the General Council of the Colleges of Real Estate Agents (COAPI), which points out that the September figures are “a clear reflection of the moment that we live in and the drop in demand for home purchases due to the rising cost of living and mortgage financing, as well as the global uncertainty scenario.”. “The turbulent political context generated around the inauguration of Pedro Sánchez and the legal uncertainty generated by the Housing Law have caused a lot of distrust,” they say.

Despite the decrease in year-on-year terms, the total volume of mortgages signed in the last month of September is the fourth highest in the last decade for a ninth month of the year. “We must remember that 2022 was an exceptional year for the real estate and mortgage market and now we are in a stabilization phase,” says Laura Martinez, spokesperson for the mortgage comparator iAhorro, positively.. “Despite this, more than 30,000 mortgages are being signed per month, so we cannot talk about a crisis, but about the balance of the different market values that are little by little adjusting in a context of high rates and mortgage prices. housing that does not finish going down,” he adds.

In monthly terms, compared to August, the mortgage firm grew by 9.6% in September, since in the eighth month only 28,344 loans were subscribed. The expansion of the real estate market in September is common after the decline in activity during the summer. However, the monthly increase recorded this year is the smallest for a month of September since 2012.

At the same time that the mortgage signing was reduced in September, the volume of loaned capital also sank 29.7% compared to the previous year to 4,446.5 million euros. The total amount of money lent by financial institutions for the purchase of housing has now accumulated negative results for six consecutive months, with falls of more than 20%. “The sector is suffering a new drop of 30% in loans granted, although it is not reflected in prices,” Font confirms.

Specifically, the average amount of mortgages signed in September fell slightly by 0.1% year-on-year in the ninth month of the year, to 143,186 euros. The spokesperson for iAhorro points out that the stagnation of the average amount of mortgages is one of the indicators that slows down the market the most. “This is because housing prices are stagnant: although they fall in some areas with less demand, in large cities like Madrid or Barcelona prices continue to rise due to the low supply there is,” explains Martínez.

Rising interest rates

However, despite the collapse of firms, interest rates remain rising. In September, the average rate at the beginning of the loan grew to 3.26% – the highest figure since February 2016 – at an average term of 24 years. A year ago, in September 2022, it did not exceed 2%. Although the upward trend continues, the advance of the average rate has slowed in recent months. In fact, in September it barely increased one hundredth compared to the 3.25% in August, as had previously happened in July.. The increases recorded at the beginning of the year were much larger. For example, only between January and February the average rate grew by just over two tenths.

In this way, the escalation in the increase in the cost of financing has slowed down, after the rate increases undertaken by the European Central Bank (ECB) began to see their end in the middle of the year.. “One of the best news is that the rate of rise in mortgage rates is reducing and that we may be close to its ceiling,” confirms the head of Economic and Financial Analysis at Ibercaja, Santiago Martínez. “That a ceiling is reached on interest rates and there is a little more visibility, since it seems difficult for the European Central Bank to further tighten monetary policy in a context of weakness in growth and moderation of inflationary tensions, is the first step towards stabilizing the mortgage market,” he adds.

The ECB finally decided to take its foot off the accelerator in October, after ten consecutive increases and leaving rates at an unprecedented level of over 4%.. Despite the fact that inflation is increasingly approaching the 2% objective set by the monetary authority, the institution chaired by Christine Lagarde does not expect to lower rates in the short term. “It is not something that we will see in the coming quarters,” stressed the former director of the IMF in a recent interview.. For its part, the Euribor – the main reference in Spain for calculating the payment of most variable mortgages – is stuck above 4%.. The indicator closed September at an average of 4.15% and in October it barely rose to 4.16%.

In any case, the rise in rates registered in September was fundamentally due to the increase in the cost of financing at a variable rate, which rose from 2.89% in August to 3.09%.. On the other hand, on fixed mortgages the average rate was reduced from 3.54% to 3.4%. Although the latter continue to maintain higher average rates and are gradually losing ground compared to their classic alternative, fixed rate loans continue to be the preferred option among the majority of new mortgage holders.. Specifically, 56.2% of the loans granted for the purchase of a home in September were at a fixed rate and the remaining 43.8% at a variable rate.