Spanish Banks Ease Mortgage Criteria: A Moderate Shift That Signals Renewed Competition in the Housing Market

07/11/2025 – ⏱ 3 min

Spanish banks ease mortgage criteria: a moderate shift that signals renewed competition in the housing market

This article is for informational purposes only and does not constitute, under any circumstances, investment advice or a recommendation.

After two years of tightened credit, Spanish banks have begun to show signs of easing their mortgage approval standards, marking a potential turning point in the real estate cycle. According to the Bank of Spain’s Lending Survey for the third quarter of 2025, the conditions applied to home purchase loans “relaxed slightly,” in a context of stabilising interest rates and low default ratios.

The shift, although moderate, reflects renewed confidence in the financial system and increasing competition among lenders to attract new borrowers. Major institutions such as Santander, BBVA, and Sabadell have launched mortgage products offering financing of up to 95% of the property’s value, targeted at young buyers or those benefiting from public guarantees issued by the ICO and regional governments. CaixaBank, meanwhile, maintains financing ratios between 80% and 90% for first-time homebuyers, reinforcing its customer-retention campaigns.

The 12-month Euribor, Spain’s main mortgage benchmark, stood at around 2.2% in October 2025, its lowest level since 2022 after peaking near 4.2% the previous year. This decline, combined with expectations that the European Central Bank will maintain a stable monetary stance well into 2026, has revived latent demand for home financing. Although no imminent rate cuts are anticipated, markets are pricing in a gradual normalisation of credit conditions as inflation converges toward the 2% target.

According to the Spanish Mortgage Association (AHE), new mortgage lending rose sharply in the second quarter of 2025 — up 50% year-on-year in capital and 32% in the number of loans — ending two years of contraction. The rebound stems from solid activity in the second-hand housing segment and a recovery in new developments, where banks and developers are once again closing pre-sale financing agreements.

Analysts agree that this easing is more strategic than expansive. After a slowdown in 2024, banks are seeking to rebalance their retail portfolios and revitalise a business line that remains central to structural profitability. Mortgage default rates remain near historic lows of around 2.4%, allowing lenders to narrow spreads without materially increasing credit risk.

At the macroeconomic level, stronger household income and a resilient labour market are sustaining demand. Spain continues to outperform the eurozone, with GDP expected to grow by 2.6% in 2025 according to the OECD, and employment reaching over 21 million contributors to Social Security. This environment has improved borrowing capacity, particularly among buyers under 35, who represent the largest share of new mortgage applicants.

Still, the structural imbalance between supply and demand limits the overall impact of easier credit. The Ministry of Housing estimates that Spain must build between 250,000 and 300,000 homes per year to meet demand, compared with just around 110,000 completed in 2024. The scarcity of developable land and the lengthy administrative process remain major bottlenecks.

For property investors, the return of credit liquidity could increase turnover in the residential market but also compress yields in the rental sector as more households shift to home ownership. In this context, real estate crowdfunding continues to grow as an alternative investment vehicle, allowing investors to participate in development or refurbishment projects without taking on direct debt exposure while diversifying across multiple assets.

Spain appears to be entering a new stage in its housing cycle: less dependent on monetary policy, more competitive among banks, and characterised by prudent credit growth. If macroeconomic conditions remain stable, 2026 could mark the consolidation of a more balanced housing market in which financing once again acts as a driver — rather than a drag — on real estate activity.

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