Spain and Portugal Tighten Watch on Fast-Rising Property Markets

Spain and Portugal are drawing closer regulatory attention to their booming housing markets, even as officials stop short of major intervention for now. Spanish house prices climbed 12.9% year-on-year in the first quarter, while Portugal saw growth of 17.8%, the highest across the European Union.

Strong immigration, robust consumer spending and tight housing supply are fueling the boom, with banks such as Santander and BBVA competing aggressively for mortgage business. Some analysts, including Antonio Luis Gallardo of consumer group Asufin, warn that continued price growth raises the risk of a future correction as affordability becomes stretched.

Portugal Moves First With Lending Limits

Portugal’s central bank has already acted, asking lenders this week to lower the maximum debt service-to-income ratio for new borrowers from 50% to 45%, after mortgage lending there grew more than 10% year-on-year, its fastest pace in over two decades.

Spain, meanwhile, is still weighing its options. Mortgage lending rose 3.8% year-on-year to €496 billion, the highest since 2018, while loans with a loan-to-value ratio above 80% climbed to 15.6% by the end of 2025. The IMF recommended in March that Spain cap loan-to-value ratios, but the Bank of Spain’s governor said in June there were no immediate plans to act, citing concerns about locking young buyers out of the market.

Not Like 2008, Analysts Say

Experts note that current lending levels remain well below those seen before the 2008 financial crisis. Spain’s average loan-to-value ratio stood at 68.4% last year, compared with 71.1% in 2016, and most new mortgages are now fixed-rate rather than variable, shifting interest rate risk away from borrowers. Adjusted for inflation, Spanish house prices remain 12.2% below their 2007 peak.

Analysts including Maria Jesus Parra of Morningstar DBRS say there is little evidence the boom is being driven by loose credit, pointing instead to higher-income buyers taking on larger loans. With supply still tight and both economies performing strongly, some economists say there is little reason to expect prices to cool soon.