Difficulties in accessing housing in Portugal and Spain will continue to exist in the short term. This is because, according to Fitch, increases in household incomes should be "practically equal" to the expected evolution of house prices in 2024 and 2025. In Portugal, the cost of housing could grow by up to 6 per cent a year.
The financial rating agency says it expects "challenges in access to housing to persist, as projected nominal household income gains in 2024-2025 are broadly equal to house price trend expectations", reads a statement.
This means that the national average house price is expected to remain between 5.5 and 6 times higher than annual gross household income, both in Portugal and Spain. As you might expect, the affordability ratio is significantly higher in large urban metropolitan areas such as Madrid and Lisbon, at almost 8 times.
According to Fitch's estimates, (nominal) house prices are expected to grow annually by between 4 and 6 per cent in Portugal and between 3 and 5 per cent in Spain. This dynamic will be fuelled by "persistent limitations in housing supply", especially in less populated areas. In cities and tourist areas, a "solid" increase in housing supply is expected.
Demand for home loans should improve in 2024
Fitch expects demand for home loans and financing conditions to improve in 2024 compared to last year, as lower interest rates are expected, something that should happen after the European Central Bank (ECB) begins to lower its key interest rates.
However, access to affordable housing is "a key social concern in both countries, especially for young families and first-time buyers with little savings capacity". It is in this context that the agency refers to the support measures announced by the political leaders of both countries, such as the Spanish guarantee scheme for young families and Portugal's tax benefits for increasing the housing stock.
As for bank financing, Fitch pointed out that, for the first time in history, mixed-rate mortgages - which combine an initial period of fixed interest followed by a variable rate - have become the norm in both Iberian countries, with 70 per cent dominance in Portugal and 40 per cent in Spain.
The bad news is that the agency predicts that there will be a "slight increase" in mortgage defaults throughout 2024, due to "the erosion of disposable income" as a result of the impact of inflation. On the other hand, defaults will "gradually" ease in 2025, as Euribor reductions in the coming months relax the payment conditions for variable rate (or mixed variable period) loans.
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