According to the Bank of Spain, the number of mortgage loan applications received by banks fell by 40% in the third quarter, the largest quarterly decline in three years.
Volumes and segments of credit demand
Demand fell across all lending segments, but the decline in financing for companies and in loans to households for consumption and other purposes was less pronounced than for loans to buy housing. Banks surveyed indicate that two interest-rate increases by the European Central Bank (ECB) between June and September, which raised the cost of money to 2,5%, were the main factor behind the reduction in demand, and they also point to “worsening prospects for the property market.”
Euro-area data and banks’ decisions
The fall in mortgage demand was also seen across the euro area: in an ECB survey of 159 banks the number of mortgage applications in the summer fell by 27% compared with a 15% decline in the previous quarter, the sharpest drop since 2013. In summer there was also a net increase of 5% in the share of mortgage applications rejected by banks, above the historical average of 4% since 2015.
The ECB states: “the evolution of interest rates exerted significant downward pressure on mortgage demand and affected it increasingly strongly over the third consecutive quarter.” — ECB.
Banks’ forecasts and specific markets
Euro-area banks expect a further fall in demand: they estimate that in the fourth quarter the net decline in mortgage demand could reach 36%. In France a particularly sharp fall of up to 88% is forecast, while in Spain the financial sector predicts a 30% quarter-on-quarter reduction in demand.
Financial adviser Montse Sespedosa notes that some buyer groups, particularly those younger than 35 years, may have advantages when arranging finance and can sometimes obtain mortgages of up to 95% of the purchase price if they meet the necessary conditions.
