In 2022, according to the INE 464,107 home mortgages were taken out throughout Spain. Therefore, over the course of this new year, nearly half a million families will likely have to make very important decisions about the loan they will apply for from their bank to cover the cost of their new home.

After two challenging years for the mortgage market due to sharply rising interest rates, inflation, and rising costs in the construction sector, 2024 could end up being a turning point that stabilizes the situation and brings some calm. At least that is what the current outlook seems to suggest, despite the obvious uncertainty that typically surrounds the real estate sector.

If you’re particularly interested in what the mortgages in 2024, this article offers a comprehensive guide that will surely help you clarify ideas and concepts. Will you join us?

How has the real estate market evolved since the pandemic?

To understand the starting point, it’s important to review the social and economic context . The COVID-19 pandemic led many people to reduce their usual expenses and save money between 2020 and 2021, so that when the lockdown ended , home sales increased .

Thus, 2022 was a year of a real estate boom, driven in part by very low interest rates on loans that encouraged investment. But everything changed that year, as the war in Ukraine led to higher prices for raw materials and also triggered an energy crisis. This factor, combined with the gradual return to normalcy (and an increase in demand for goods and services), drove up inflation and reduced Spanish households’ ability to save.

All of this ultimately caused interest rates to skyrocket, which meant that the cost of taking out loans and mortgages also rose significantly. As a result, consumer spending declined throughout 2023 and the real estate market cooled off. In fact, according to the INE, home purchases fell by 23.7% in September of last year—the largest percentage drop since July 2020.

Mortgage Market Overview as of the End of 2023

With all this in mind, 2023 has been a year in which the main benchmark for interest rates, the Euribor, has continued to rise for most of the year. In fact, it reached its recent peak in October 2023, closing at 4.160%, nearly one percentage point higher than its January figure (3.337%).

Despite this, in November and December it began to show the first signs of stagnation and even a decline, falling below 4 points in December. This is undoubtedly good news both for homeowners with variable-rate mortgages and for those considering buying a home in 2024.

Mainly because 2023 hasn’t been a good year from his perspective: mortgages have been more expensive than usual, inflation has made it harder to save, and banks have tightened their lending requirements, especially for fixed-rate loans.

The reasons? The need to reduce the risk of delinquency in the short and medium term, and the clear preference of lenders for adjustable-rate mortgages at a time when common sense would have dictated choosing a fixed rate.

Banks prefer that you take out a variable-rate mortgage

According to data from the INE, in 2013, 92.3% of new mortgages were variable-rate and 7.7% were fixed-rate. But this trend began to shift more noticeably in 2016 (78%–22%); and in 2021, due to the impact of the pandemic, the trend reversed completely, with 60.5% of new mortgages being fixed-rate and 39.5% variable-rate. This is logical, given the market uncertainties at the time and the subsequent rise in the Euribor.

However, in light of this situation, banks have sought to restore the dominance of adjustable-rate mortgages. Aware of the concerns that such high interest rates were causing among buyers, in 2023 they improved their offers for this type of loan and tightened the terms for fixed-rate loans. All of this stems from their conviction that, from a business perspective, variable-rate payments are more profitable for them in the long run.

Mortgages in 2024 for variable-rate loans

The European Central Bank (ECB) is primarily responsible for setting official interest rates in Europe, so its decisions have a direct impact on the Euribor and, consequently, on the cost of mortgages. And in the final months of 2023, the ECB has already indicated that its interest rates will not drop significantly throughout 2024, even though the Euribor has begun to offer grounds for hope.

In fact, with inflation more under control and the real estate market contracting, the short-term outlook is that the Euribor will continue to fall gradually throughout 2024. It probably won’t fall below 3%—and certainly won’t return to pre-pandemic levels—but it will drop enough to give families with variable-rate mortgages some breathing room.

“Eleconomista.es” notes that there could be up to five downward adjustments to interest rates, in fixed increments of 25 basis points, bringing the eurozone interest rate to 3.25% by the fall of 2024. This would provide relief for these mortgages (25-year terms with an average cost of 143,186 euros) of 240.96 euros per year, or 20.08 per month, for each 25-basis-point cut; for a total of 1,173.48 euros in a single fiscal year under the best-case scenario.

However, it’s important to note that for this group of mortgage holders, the benefits will depend largely on the review periods they’ve agreed upon with their banks: if reviews occur every six months, they can begin enjoying the aforementioned reductions as early as this January; if reviews are annual, they’ll have to wait until April to benefit from the adjustments.

Options for switching mortgages in 2024 or paying them off early

Another point for debtors to keep in mind is that in 2024, the measures established by the government to support vulnerable mortgage holders and eliminate fees associated with switching from a variable-rate to a fixed-rate mortgage or with making extra principal payments to save on interest.

These measures have been in effect since November 2022, when Royal Decree-Law 19/2022 was approved with the aim of alleviating the pressure on mortgage holders following the rise in interest rates and the Euribor. As a result, it is estimated that up to one million households are benefiting from these measures in one way or another.

Mortgages in 2024: Which option should I choose if I want to buy a home this year?

To follow up on what was mentioned earlier, the ECB has announced that 4.5% of its interest rates will not see significant reductions in 2024; however, at least the Euribor is showing signs of improvement. In fact, another interest rate that affects it—that of the U.S. Federal Reserve— has already signaled that cuts are more than likely throughout the year.

To put it simply, when it comes to 2024 mortgages, first-time homebuyers who want to take out a mortgage during these 12 months should keep the following in mind:

• The Euribor is expected to fall gradually throughout the year, but at a slow and steady pace. The fact that the ECB does not plan to lower its benchmark rate in the first few months of the year does not bode well for major upheavals or dramatic improvements.
• The real estate market in Spain saw a significant decline in the final months of 2023, so average prices will likely stabilize or may even fall in some cities.
• The European economy will likely continue to grow modestly, while inflation will also continue to decline at a slower pace than at the end of 2023.

The Ideal Mortgage in 2024

Taking all these factors into account, 2024 looks set to be a better year than 2023 to apply for a mortgage. In the case of adjustable-rate mortgages, borrowers will likely see their initial payments decrease after the first few adjustments, although uncertainty will remain in the medium and long term: after all, we must not forget that the longer the repayment term, the greater the risks; and that over periods of two or three decades, it is inevitable to weather two or three economic crises.

While fixed-rate mortgages will likely also offer more attractive terms for borrowers in 2024, variable-rate mortgages will regain their competitiveness. This makes them a very attractive option for those who want to avoid surprises in the future—provided they are willing to pay a higher monthly payment today, incur more interest, and accept shorter repayment terms.

So, for the first half of 2024, variable-rate mortgages may be a good option; but if you’d rather take out a fixed-rate mortgage, it might be wise to wait a few more months for banks to improve their offers. And don’t forget the third option: a hybrid mortgage that allows us to enjoy a fixed but affordable payment for the first few years and then switch to a variable payment in the medium term, once the market has (probably) overcome this recent slump.

Mortgages in 2024: The Keys to Making a Good Choice

In short, although it’s impossible to predict exactly what will happen, the mortgage market in 2024 gives us reason to be somewhat more optimistic than we were 12 months ago. The worst of the crisis seems to be behind us, but we shouldn’t let our guard down just yet.

The key to making the right decision is to fully understand the situation we’re in (within its social and economic context) and to we properly assess our current situation and our future prospects for the future, and that we are prudent enough not to end up taking on more risk than we can afford.

We recommend:

• Real Estate Market Forecasts for 2024
• What are the costs associated with buying a home?
• How to Save on Household Expenses in 2024