The rising interest rates and their link to Euribor are reshaping Spain’s housing market. As the reference for variable-rate mortgages stays high, access to home ownership becomes tougher for lower-income families. After a period of generous lending, the next few years may see Spaniards entering a market with tighter credit and higher monthly payments, making home buying harder than it was just a year ago.
This impact is uneven, skewed by household income. In many cases, buying a new home means selling the current one to fund the purchase, with or without a separate mortgage. Those who own no real estate often face higher upfront requirements, leaving only modest savings for the down payment and closing costs to satisfy bank and tax constraints. Conversely, higher earners can secure larger mortgages, while those with lower incomes carry smaller borrowing limits.
Euribor has not fallen since last December and remains above 3 percent, hovering around 3.7 percent. About 38 percent of Spanish families cannot afford a second-hand home at a price of 170,000 euros because banks are reluctant to lend in those cases. When a family would need to allocate more than 35 percent of monthly income to service debt, lenders typically refuse the mortgage. These observations come from data gathered by Enrique Martín Barragán, an IEB professor and former director of JLL and Sareb, and compiled by Javier Sánchez, CTO of Aedas Homes, in the Unreal Estate newsletter.
What happens if Euribor rises?
Using figures from the National Institute of Statistics, Spain’s housing stock comprises more than 18.75 million households. In a worst-case scenario where Euribor hits 6 percent—levels not seen in the 21st century—around 61 percent of households would still be unable to own a home priced at 170,000 euros, as the required annual income would be about 35,000 euros. The challenge tightens further when considering a 250,000-euro home, where roughly 85 percent of buyers would face an entry affordability gap, since more than 51,300 euros in annual income is needed to qualify.
Visuals show the income required to purchase homes at 170,000 or 250,000 euros on a 30-year mortgage, depending on interest rates. These projections reference Enrique Martín Barragán and reflect scenarios where Euribor shifts from 3 percent to 4 percent, or higher, impacting the ability of roughly 1.5 million households to buy a 170,000-euro second-hand property, given current income levels. For new builds, about 6.75 million households might reach a 3 percent rate, but only around 5.25 million would at 4 percent, widening the share of families unable to access a 250,000-euro home from 64 percent to 72 percent.
Institutions including ING have already warned that interbank rates could exceed 4 percent before year’s end unless the European Central Bank halts further hikes. Recent movements around 3.7 percent—stabilizing after the U.S. Silicon Valley Bank event and UBS’s rescue of Credit Suisse—underscore the sensitivity of mortgage affordability to policy shifts.
1,000 Euro mortgage per month
Higher borrowing costs erode purchasing power for many families. A graph illustrates how much home a borrower can afford with a 1,000-euro monthly payment over 30 years at Euribor plus 0.5 percent. Under such terms, a household net income of roughly 2,850 euros could reasonably allocate up to 35 percent to debt service, leaving limited room for other expenses.
In 2020 and 2021, a 1,000-euro monthly payment could support a home purchase worth more than 425,000 euros, and even close to 450,000 euros. By 2022, with Euribor above 3 percent, affordability declined sharply, permitting only a purchase around 267,000 euros for the same monthly payment. The reduction in purchasing power far outpaced declines seen in the late stages of past real estate cycles.
If a buyer can contribute 20 percent of the price as a down payment, or if a seller relocates to a larger property, affordability improves somewhat. In such cases, lenders may be more willing to approve, expanding purchasing power for some households.
Maximum Effort Rate
The squeeze on access to home ownership for lower-income groups coincides with a steep rise in the household effort rate—the share of income devoted to debt payments. CaixaBank notes that families already set aside about 38 percent of their income to service mortgages, mainly because floating-rate loans are most affected by Euribor increases. The Bank of Spain recommends keeping the effort ratio below 35 percent to avoid real estate bubbles and stressed lending conditions. If house prices remain controlled or fall modestly, CaixaBank estimates this indicator could ease slightly by year-end.