Is the end of 100% value mortgages here?

Subprime mortgages are declining: banks are becoming more cautious and demand from buyers with no savings is disappearing. Today, only 44% of homes are purchased through mortgages, and the average loan-to-value (LTV) ratio has fallen to levels similar to 2019. Mortgages exceeding 80% of the value of the property have reached historic lows.

Rising interest rates have turned the mortgage market upside down. In recent months, as the cost of money has approached 4%, new lending for home purchases has slowed, making mortgage supply more expensive. At the same time, banks are becoming more cautious in their lending.

This scenario has led to the exclusion from the market of those potential homebuyers who are less financially solvent and who, precisely, need more financing, as indicated by official statistics.

One of the indicators is the weight represented by mortgages that exceed 80% of the value of the outstanding mortgage loan. According to the Bank of Spain, at the end of the first quarter, only 7.1% of the total volume of loans for house purchase was considered “high risk”. This is the lowest level recorded since these data began to be collected in 2004.

Another relevant figure is the ratio between the amount of mortgages and the value of homes, known as “Loan To Value” (LTV). According to statistics from the financial supervisor, at the end of the first quarter, the average LTV in Spain stood at 63%, the lowest level since the last quarter of 2019, despite the fact that house prices remain positive.

As experts explain, these figures are due to several factors. One of them is the greater prudence of banks when granting new mortgages. In a climate of economic uncertainty, banks seem to be limiting their exposure to risk by reducing the LTV of the mortgages they grant, banks have reinforced their policy of prudence precisely in years in which mortgage lending has exceeded expectations, and are now more selective when granting financing.