Savings migrate to the housing market

Barcelona“Mortgage amortization is a reality, it has increased in the last year,” a banking source told ARA. “A lot of people take the money in the bank and use it to buy a property,” says an employee at a major Spanish bank. These two similar practices sum up the trend: savings move into the housing market.

The data confirms this: the amount of money Spaniards owe to financial institutions to pay their mortgages is less than the minimum. This is known as the outstanding mortgage balance and amounts to 494.986 million euros. It has not fallen below 500 thousand million euros since 2005.

This reduction has been happening for some time and responds to both lower credit dynamics and a large number of mortgage amortizations: in the first half of 2023, Spaniards amortized 6% of the balance of live mortgages, according to data from the European Central Bank. The latest financial stability report issued by the Bank of Spain.

At the same time, the housing market remains more dynamic than the credit market. Purchases and sales in Catalonia decreased compared to 2022, but two things should be taken into account: they did so less than mortgages and in that year the number of sales was the highest in the last 15 years. The so-called base effect occurs, which refers to the number to which the index is compared, as happened with inflation.

High rates, low deposits

“We found that with returns on deposits of 2%, if customers have the opportunity to buy a property, they use their savings to do so. We have noticed this for some time, as well as advances in mortgage terms. Our mortgage balance has reduced,” explains this factor. .

For months mortgage signings have been in free fall, a trend that generally leads to a decline in the number of sales transactions: if fewer mortgages are signed, fewer apartments are sold. But the truth is that these two indicators have been out of sync for several months.

“Given the decline in mortgages, and the decline in sales, this tells us that real estate assets act as a safe haven. Transactions have decreased, but in Barcelona they are still continuing,” explains Chamber Director of the ARA of Urban Property, Oscar Jorges. “It's also a matter of supply, there's a lot of investment capacity, and the evidence is how new work disappears from the market,” he adds.

However, it was not a bad year for everyone: “In our case, we increased mortgages by 64% compared to last year,” explains the Credit Area Director of Banco Mediolanum to ARA, Ainhoa ​​Basurko. It should be noted that 2021 and 2022 were good years for the real estate market, because households had accumulated savings.

Alternative investment

According to data from the College of Registrars of Spain, 34.9% of home sales in Spain last year were carried out without mortgage financing. In Catalonia, the number of mortgages on homes fell by 18.6% last year, one and a half points higher than the Spanish average.

“Investors enter the housing sector because it is seen as a good alternative to investment: it is safe because apartments are being revalued. Those who have money allocate their savings to housing without needing a mortgage, and people who have a mortgage, as interest rates have risen for them, have allocated their savings To pay the mortgage,” explains Jorges. In the first case, they are people with high purchasing power who can buy a house outright. The Spanish government has decided to keep the abolition of early repayment commissions for variable mortgage loans until June.

Between inflation, which rose although it remained moderate to 3.4% in Spain in January – still far from the European Central Bank's target of 2% – and the decline in bonuses on deposits and the wave of interest rate increases, which affected and made credit… As real estate becomes more expensive, a cocktail has been produced that encourages these practices. “The normal thing is to take savings, put them towards canceling the mortgage and thus stop paying interest, when they will not lose value,” adds Gorgis.