The Iberian mortgage market will be supported by a rise in prepayments, amid low refinancing costs and the expected increases to the rate of euro interbank offered rate, according to a recent report by Fitch Ratings.
Prepayments in Spain are higher, with an annualised constant prepayment rate of 8.27% in January 2022, compared with 5.4% in Portugal.
Spain’s prepayments have been driven by cheaper costs of refinancing from an update of the country’s mortgage law in 2019, with borrowers having an incentive to explore better terms and secure fixed-rate loans. However, in Portugal, lenders offer mostly floating-rate loans at tight spreads.
Fitch expects residential mortgage production will continue to increase, driven by factors such as the low interest rate environment and job creation. But the increase in mortgages will be at a slower pace in 2021, when there were about 35% of new mortgage transactions in Portugal and Spain relative to the total number of housing trades.
Energy-efficient mortgages will gain a bigger market presence as part of the move towards energy-efficient homes and buildings under the EU Green Deal strategy. More than 60% of both Portugal and Spain’s housing falls under the ‘E’ and ‘F’ energy efficiency categories, which means that there is much room for improvement.
