60% of residential purchases in Spain without a mortgage: a hint to potential buyers with financial capability.

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In Spain, the cost of real estate continues to rise. For the first time since 2008, the average price per square meter has exceeded 2,000 euros. The reasons for this vary by region, but they are mainly related to a lack of supply and a low number of new constructions, high demand, and rising construction costs.

As a result of this situation, housing prices increased by 7.2% last year compared to the previous year. This situation even led to a warning from the European Union to Spain about inflated prices.

However, there is another surprising fact: despite such high prices, more than half of real estate transactions in Spain are carried out without a mortgage. This is according to data from the National Institute of Statistics and the latest report from Funcas, which states that only 4 out of 10 transactions require a loan. In other words, more than half of people buy property in cash.

Of the 832,756 real estate properties sold from January to October of last year, the most recent available data, only 323,998 were purchased using a mortgage (38.9%). These figures are even lower when considering only those transactions made through real estate agencies. Data from the General Council of Notaries also indicates that half of the residential properties were purchased using a mortgage last April.

All analysts agree that more and more people are buying real estate with cash, and this trend continues to grow.

What does this mean? In general, it means that people are buying with cash to avoid paying mortgage interest, whether from savings or inheritance. And, above all, because numerous real estate transactions are happening due to investments from funds or wealthy individuals. In other words, this is speculative urban development.

There are also other clear signs of this: most of these transactions fall under the so-called "wholesale investments" by companies or wealthy foreign individuals who buy these homes not for living, but for investment purposes. Moreover, most mortgage-free transactions are concentrated in tourist areas and are usually secondary residences. A striking example is the Balearic and Canary Islands, where the percentage of mortgage-free transactions is 60.7% and 60.2%, respectively.

InMurcia, this percentage is 57.6%, and in Asturias, it is 57%.

Real estate has once again become the most profitable investment in Spain. This should be added to a parallel trend: the increase in interest rates applied by the European Central Bank (ECB) to curb inflation, which has led to more expensive financing. As interest rates rise, mortgages become more expensive as banks tighten lending conditions, resulting in a decrease in the number of mortgage loans issued (down 25.7% in July 2023 compared to July 2022). Most buyers have to forgo bank loans and purchase property in cash. Or they simply do not buy at all. It already costs more than renting.

Households are increasingly facing higher mortgage payments. This trend has intensified to the point where in nine cities in Spain, mortgage payments already exceed rental prices, according to a study conducted by UVE Valoraciones. For example, in San Sebastián, the monthly mortgage payment for an 80 square meter apartment is €1,870 (€23 per m²), while renting a similar space costs €1,344, which is €526 less. Another example is Marbella, where the mortgage payment is already €19 per m² (€1,555 for a house), while rent is €16 (€1,296). This accounts for 45% of the salary.

Inflated prices are already taking up a significant portion of family income. According to the latest research from the OBS Business School on the real estate market, 45% of family income in Spain is spent on mortgage payments, which is higher than the EU average and 15% more than in 2021. At the same time, rental payments continue to rise: last year they reached a new historical high of 12.1 euros per square meter. Ordinary citizens now have few options if they do not have savings.