The pandemic spared no one, yet its economic impact hit everyone hard, from households with modest means to those with substantial wealth. Recent findings from the Bank of Spain show that mortgage borrowing surged during the crisis, with households already paying mortgages continuing to borrow more in many places, especially where incomes were lower. Conversely, areas with higher incomes saw increased activity in new mortgage acquisitions from households that previously did not hold mortgage debt, aided by low interest rates and favorable borrowing conditions.
Rising debt during a health emergency might appear to signal financial trouble, but the picture is nuanced. A BBVA Research report highlights a strong 38.4% rise in home sales in 2021, a trend that extended into the early months of the following year. This growth was driven in part by a preference for larger homes with better ventilation, a perceived increase in housing as a solid investment, and the accumulation of savings during lockdowns. Low interest rates further encouraged borrowing, enabling households with solid income to upgrade or rent out properties, while those with weaker purchasing power took steps to reduce overall debt in response to the economic shock of the pandemic.
municipal differences
Analyses from the Bank of Spain reveal widespread growth in mortgage debt overall, driven mostly by home purchases and, to some extent, by other real estate acquisitions. Between 2019 and 2021, mortgage debt rose by 0.17% and reached 514,676 million, but the movement was not uniform. In 3,314 municipalities with lower average incomes (around 8,953 euros per year), mortgage debt decreased by 2.05% and the income level fell by 1.26%. In 3,066 towns with higher average earnings (about 10,809 euros) and in 2,076 towns with an average income of 12,270 euros, mortgage debt showed different patterns, with minor changes and modest increases. In contrast, 1,454 municipalities with an average income of 13,951 euros saw a 0.6% rise. The strongest growth came from the wealthier segment of the population: the 897 municipalities with the highest incomes reported mortgage debt rising by 3.65%, underscoring a broader trend where wealthier households were more active in borrowing during the period. This has important implications for banks and overall financial stability, as the report notes that the portfolio quality of mortgages improved since the pandemic began, reflecting resilience in the banking sector.
Distressed loans remained relatively low overall, standing at 8.58% at year-end, with government and private sectors accounting for portions of the risk. The rate was notably higher in three regions characterized by lower rental incomes. In these areas, high-income households reduced their mortgage debt more quickly, while the lower-income groups showed a slower reduction, suggesting diverging debt trajectories across municipalities. As wealthier households increased borrowing while lower-income households paid down debt, the risk to asset values appeared to ease overall, according to the data.
social problem
The evolution of mortgage balances also points to a long-standing housing affordability issue in the country. Property prices have risen considerably, with an increase of 39.3% since 2015, outpacing 5.6% growth in general fees over the same period, according to a report from the Green Building Council Spain (GBCe). The burden is heavier for lower-paid and lower-savings households, whose behavior during the pandemic years shows heightened sensitivity to price changes and financing constraints.
Short-term improvement remains uncertain. BBVA Research projects housing prices to rise by about 5% in 2022 and another 5.8% in 2023, driven by sustained demand and inflation. While the European Central Bank’s rate adjustments are expected to influence mortgage costs, the report suggests the impact may be limited for many borrowers as long as households can meet a substantial down payment, typically around 20% of the property’s value. For the lowest-income earners, accumulating that level of savings continues to be a significant obstacle.