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European mortgage interest rates: A comparative analysis of the case of Spain

Authors: Santiago Carbó Valverde and Francisco Rodríguez Fernández. SEFO - Spanish Economic and Financial Outlook. Vol. 4, N.º 3 (May 2015)

Wednesday 24 June 2015, by Carlos San Juan


The correction of Spain´s mortgage market lagged behind most other euro area countries, but recent evidence points to rapidly declining interest rates since 2013, as well as an incipient recovery in this market overall. Current monetary policy, together with recent regulatory changes, should continue to support the persistence of improved borrowing conditions.

After the burst of the housing bubble, the real estate market in Spain suffered a substantial correction, with mortgage contracts being no exception. While the number of contracts fell significantly, mortgage interest rates have followed a more erratic pattern. In the case of Spain, bank competition and low market rates led to too lax mortgage pricing policies relative to most other euro area countries prior to the crisis. However, market and competitive pressures on bank margins have not been a major determinant of mortgage rates during the crisis. In fact, rates increased faster in Spain than in other euro area peers during the crisis, in particular, in 2011 and 2012 amid sovereign debt tensions. Mortgage rates have been falling significantly since 2013 and in 2015, the mortgage market is showing signs of an incipient recovery. Recent factors, such as the progressive removal of interest rate floors on mortgage contracts, and the achievement of historically-low market rates, are increasing bank customers´ leverage at the time of negotiating rates on new and existing mortgages. The result has been more favorable terms for borrowers.

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