Surging House Prices and Evolving Mortgage Landscape in Spain: What Expats Need to Know

As the Spanish housing market continues to experience significant growth, expats considering purchasing a home in Spain need to be aware of the latest trends and forecasts. Here’s a detailed look at what’s happening and how it might impact your decision.

Rising House Prices

According to recent predictions from CaixaBank Research, housing prices in Spain are expected to rise more sharply than previously estimated. Judit Montoriol, the Lead Economist at CaixaBank, suggested during the IV National Housing Congress in Malaga that house prices will accelerate due to several key factors.

By the end of 2024, house prices are forecasted to increase by 4.4% to 5%, a significant revision from the earlier estimates of 2.7% to 3.5%. For 2025, CaixaBank anticipates a further increase of up to 2.8%[1].

Impact of Euribor Rates

The Euribor (Euro Interbank Offered Rate), which is the main reference for mortgage interest rates in Spain, is expected to decline. After averaging around 3% in September, the Euribor is forecasted to drop to 2.65% by the end of 2024 and further to 2.1% to 2.15% in 2025. This decline, driven by interest rate cuts by the European Central Bank (ECB), is making borrowing more affordable and boosting demand for residential property mortgages[1].

Growing Demand and Supply Gap

The improved economic outlook in Spain, coupled with population growth, is increasing consumer confidence and spurring greater demand for property investments. The National Statistics Institute (INE) projects that around 330,000 new households will form in Spain every year from 2024 to 2028, significantly higher than the previous annual estimate of 215,000. However, this increased demand is outpacing the available housing stock, leading to a housing shortage that will contribute to sustained price growth[1].

Construction Costs and New Builds

Higher construction costs, which are still 30% higher than pre-COVID-19 pandemic levels, are limiting new housing developments. While CaixaBank predicts that 240,000 building permits will be issued over the next two years, this is not enough to meet the demand generated by the formation of new households. This supply-demand imbalance is expected to continue driving house prices up[1].

Economic Growth and Expats

Spain's robust economic performance, driven in part by the tourism sector, is improving the job market and household incomes. This economic growth is encouraging more homebuyers to enter the market. CaixaBank has revised its GDP growth forecast for 2024 from 2.4% to 2.7%, reflecting strong internal demand and a positive labor outlook[1].

Tax Incentives for Expats

For expats considering a move to Spain, the "Beckham Law" (Spanish Special Expatriates’ Tax Regime) offers significant tax advantages. Introduced to attract foreign talent, this regime allows non-residents to be taxed at a 24% flat rate on all income earned in Spain, compared to the general tax rates that can reach as high as 54%. This regime has been updated to include digital nomads as of January 1, 2023, making it more inclusive for a wider range of expatriates[4].

Relocation and Housing Services

To navigate the complexities of relocating to Spain, services like those offered by Relocate Now can be invaluable. This startup, which has expanded from Portugal to Spain, provides step-by-step guidance on immigration processes, tax advisory services, living essentials, housing assistance, and more. Such services can help expats overcome the bureaucracies associated with moving and living abroad[3].

In summary, the Spanish housing market is poised for continued growth, driven by favorable economic conditions, population growth, and lower Euribor rates. While this presents opportunities for expats, it also highlights the need for careful planning and understanding of the local market dynamics. With the right resources and tax incentives, Spain remains an attractive destination for those looking to relocate and invest in property.