After the boom in mixed loans in 2023, fixed-rate loans are becoming significantly more important again thanks to the ECB's interest rate cuts and improved bank offers. Variable-rate mortgages, on the other hand, are reaching historic lows.
After a period of rise for mixed-rate mortgages, fixed-rate loans are now making a comeback as the dominant model in the mortgage market in Spain. According to the latest bulletin from the Spanish Mortgage Association (AHE) for the second quarter of 2024, the market share of mixed-rate loans, which doubled from 15% to 30% last year, is declining again.
The increased attractiveness of fixed-rate loans is closely linked to the recent interest rate cuts by the European Central Bank (ECB) and improved mortgage offers from banks.
Shifts on the mortgage market
The AHE report shows that the share of mixed mortgages fell to 28.9 % in August 2024, after peaking at 34.4% in 2023. In contrast, fixed-rate mortgages have significantly increased their market share: 61.5% of new contracts were for this type of mortgage - an increase of around 15 percentage points compared to the previous year. More than three out of five transactions are now concluded with a fixed interest rate, which marks the highest share in two years.
Mixed mortgages, which offer an initial fixed rate of one to ten years, remained more prevalent than before the ECB's drastic interest rate hikes from July 2022, when their share was only 15%. Nevertheless, it is clear that consumers are increasingly focussing on the security of long-term fixed interest rates again.
The decline in variable-rate mortgages
The trend is particularly clear for variable-rate mortgages. This type of loan, which still had a market share of 94% in 2006, has fallen continuously and reached the lowest value in the history of the AHE in August 2024 at just 9.5%. This reflects the need for borrowers to rely on more stable loan models in the face of volatile interest rates.
Future prospects: Fixed-rate and mixed mortgages dominate the market
Analysts and industry experts expect fixed-rate and mixed loans to remain the preferred mortgage models in the coming months. The interest rate cuts introduced by the ECB since June 2023 have already led to better mortgage conditions and further easing is expected. Currently, more than a dozen banks are offering fixed-rate mortgages at rates around 3 %, while mixed mortgages are tempting with fixed rates below 2.5% for the first three to five years. Even better deals are expected to come to market by the end of the year, including fixed rate loans at 2 % and blended loans at 1.5%.
Effects of the interest rate cuts
The ECB's interest rate cuts are already having a significant impact on mortgage financing costs. The Euribor, which was still at 4.1% in September 2023, fell to 2.9% last month and the average mortgage rate fell to 2.7% by October 2024. As a result, the effective interest rate for new mortgages in the third quarter of 2023 was 3.46% - a decrease of 0.44 percentage points compared to June 2023.
Even though monthly repayments have fallen slightly as a result of these interest rate cuts (from €732 to €713), the full impact has been somewhat mitigated by rising property prices and the need for higher loans. Nevertheless, the reduction in interest rates is a relief for many borrowers.
The mortgage landscape in Spain is currently experiencing a significant shift towards fixed-rate loans, which have become more attractive again due to the ECB's interest rate cuts and improved bank offers. While mixed loans are still in high demand compared to previous years, it is clear that long-term stability and predictability are crucial for borrowers. In the coming months, the development of favourable conditions is likely to further fuel this trend, which could open up particularly favourable opportunities for buyers.