No dramatic slowdown in Spain

Article Date : 16 January 2006

Mortgage interest rates for buyers of property in Spain are forecast to rise during 2006 but, given the high demand from Spaniards desperate to get on the property ladder and northern European second home buyers, the “slowdown is not expected to be dramatic”.
That’s the view of the Spanish Mortgage Association (AHE) in a report that reveals Spanish buyers have racked-up a record EUR 700 billion in mortgage uptake. In October last year, mortgages reached EUR 705.3 billion, rising 25 percent or EUR 114.6 billion from the month before.
The AHE report predicted the European Central Bank(ECB) would have to raise interest rates later this year in an effort to cool the housing boom, and the association expected a slow down in mortgage lending this year with the prospect of rate hikes.
The ECB recently raised rates from 2 percent to 2.25 percent, the first time it has done this in five years. The one-year Euribor rate – key to mortgages in Spain – is expected to rise to 3.8 percent by the end of 2006. It currently stands at 2.8 percent.
This means people in Spain will have to use eight percent more of their income to pay-off their mortgages on average, typically this will mean a rise of between EUR 10- 60 per month. The slowdown in the mortgage lending is not expected to be dramatic, says the AHE report.
Alberto Linares of MortgagesInSpain said: “This is unlikely to deter British buyers who have already spotted the added value and slowdown in property prices in many areas of Spain. Buying well can more than offset any small increases in the interest rates.”
Last week the Bank of Spain repeated the European Central Bank's claim that Spanish house prices are between 24 and 35 percent overvalued.
The bank revealed that household debt as a ratio of gross disposable income had doubled to more than 100 percent since the mid-1990s. "The Spanish economy and, particularly, its households are now undeniably more vulnerable to adverse developments, especially to a potentially greater-than-expected hike in interest rates.”
Article Source: Spanish Property News

No dramatic slowdown in Spain

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