This is Fitch Ratings’ forecast for Portugal and Spain, assuming that the difficulties in accessing housing will persist.
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 rise by up to 6% 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 in line with housing pricetrend expectations”, reads a note.
This means that the national average house price is likely to remain between 5.5 and 6 times higher than the 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 eight times.
According to Fitch’s estimates, (nominal) house prices are expected to grow annually by between 4% and 6% in Portugal and between 3% and 5% in Spain. This dynamic will be fueled 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 to improve in 2024
Fitch expects demand for housing 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) starts lowering its key interest rates.
However, access to affordable housing is “a fundamental 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 to increase the housing stock.
As for bank financing, Fitch pointed out that, for the first time in history,housing loans at mixed rates – which combine an initial period of fixed interest, followed by a variable rate – have become the norm in both Iberian countries, with a dominance of 70% in Portugal and 40% in Spain.
The bad news is that the agency predicts that there will be a “slight increase” in defaults on home loans 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 reductions in the Euribor over the next few months relax the payment conditions for variable rate (or mixed variable period) loans.
