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Spanish Residential Mortgage Market Update

In this commentary, we provide an overview of the Spanish housing market as well as how the economic outlook could affect the housing market and the performance of Spanish residential mortgage-backed security transactions.

Key highlights include:
-- House prices and mortgage performance have so far been resilient, thanks to unemployment rates that remain on a downward trend. Despite the rising cost of living and high inflation, DBRS Morningstar believes that house prices are unlikely to suffer a substantial drop.
-- The consumer price index reached its peak in July 2022 with a rate of 10.8% and, since then, inflation has been gradually reducing with the latest figures showing an inflation rate of 5.8%.
-- Historically, the savings rate for Spanish households has been significantly lower than that for other European Union (EU) countries. During 2020 and 2021, and mainly because of pandemic-related restrictions and government support measures, the savings rate significantly increased to fall in line with the EU average.

“Spain has historically been a floating-rate mortgage market. Until 2016, more than 90% of mortgage originations were floating-rate loans, mainly referenced to 12-month Euribor. Since then, and due to the low interest rate environment, banks have promoted fixed-rate mortgage loans. As of mid-2022, the Spanish outstanding mortgage loan book consisted of approximately 30% fixed-rate mortgages. We believe that prime Spanish mortgage loans will likely see only a modest deterioration in arrears and default levels, partly due to a higher share of fixed-rate loans and lower indebtedness levels”, said Alvaro Astarloa, Assistance Vice President of European RMBS & Covered Bonds at DBRS Morningstar.