Bank of Spain eases mortgage limits citing lack of pressing risk

The Bank of Spain does not plan to press the red button on mortgage lending just yet. On Thursday, the supervisor confirmed it continues refining the legal limits on mortgage lending it has studied for months, but ruled out activating them for now.

"There is no urgency," Daniel Pérez Cid, the institution's director general for financial stability, said during a report presentation. "We have time to keep improving them."

The so-called macroprudential limits (caps on the percentage of a property's value a bank can finance on repayments as a share of salary or on the length of loans) remain tools available to the supervisor that it has never activated. Spain, together with Italy and Germany, is one of only three countries in the European banking union that has still not applied them, despite repeated recommendations from the International Monetary Fund and the European Systemic Risk Board.

The report explains why: risks in the property market "remain contained" and the priority now lies in advancing "methodological developments aimed at properly calibrating these measures ahead of any possible activation".

"We are making good progress, yes… but we are not at the end yet," Pérez Cid said.

The reason for the caution lies in the side effects. If applied without nuance, the limits would hit the very people who already struggle most to enter the housing market: households under the age of 35.

The report estimates the measures would reduce long-term home ownership rates, push rents even higher and force young people to "reduce demand" and "delay the decision to buy a home". For that reason, the Bank of Spain said the design "allows flexibility" and may include "less restrictive limits or exemptions for certain groups of households".

"We need precision and we need to minimise side effects," the Bank of Spain's financial stability chief said.

That group of society already pays a high price to buy a home. By the end of 2025, 43.8% of new mortgages exceeded 80% of the purchase price, up from 39.2% at the start of 2024. The proportion of loans above 80% of the property valuation also rose from 10.8% to 15.6%.

Although the average repayment burden remains contained at 23.5% of income, the Bank of Spain's own figures confirm these riskier loans concentrate among "younger borrowers with lower incomes" and involve longer repayment terms.

Behind that over-indebtedness lies the real bottleneck, which the report quantifies for the first time after analysing tax, labour and banking data from millions of households over seven years.

Only 8% of independent households still living in rented accommodation have enough net wealth to buy the home they would like under prudent conditions. The other 92% remain excluded because they cannot gather the 20% deposit, taxes and transaction costs, plus savings equivalent to one year's needs. The problem is not the monthly repayment, it is the upfront savings.

A household with strong financial capacity has an 8.4% annual probability of moving from renting to ownership. For financially constrained households, the probability falls to just 2.8%.

Those who manage to buy despite the restrictions end up purchasing homes that are, on average, 45,000 euros cheaper than the ones they would otherwise choose.

The report's own simulations confirm this. A cap limiting loans to 80% of the purchase price would reduce first-home purchases financed by mortgages by 10.2%, while limiting repayments to 35% of income would cut them by only 2.2%.

The wider context remains suffocating. House prices rose by 12.7% in nominal terms and 9.7% in real terms in 2025, while prices in the final quarter alone surged at an annualised rate of 10.2%. At the same time, Spain created 225,000 households but completed only 92,000 new homes.

The great paradox is that the price surge does not stem from a credit bubble: outstanding mortgage debt accounts for just 29.9% of GDP, close to a historic low.

"When we talk about a property bubble, we are not seeing that today," Pérez Cid said.

But the social crisis surrounding access to housing remains, even without any banking collapse to explain it. That is why the supervisor prefers to wait until it has fully refined a tool that does not end up crushing young people in the process.