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Spain and Portugal are closely monitoring their residential property markets as rapid house price growth and strong mortgage lending raise concerns about potential overheating. House prices increased by 12.9% year-on-year in Spain and 17.8% in Portugal during the first quarter of 2026, supported by robust demand, limited housing supply and favourable economic conditions. While regulators in both countries have introduced or are considering limited measures to improve financial stability, authorities believe current market conditions remain significantly different from those preceding the 2008 global financial crisis. Analysts say affordability pressures persist, but supply shortages rather than excessive credit continue to be the primary driver of price appreciation.
Spain and Portugal are increasing scrutiny of their residential property markets as sustained house price growth and expanding mortgage lending raise early concerns over market overheating. Despite the rapid appreciation in property values, regulators in both countries have so far refrained from introducing stringent intervention measures, citing stronger economic fundamentals and lending standards than those seen before the global financial crisis.
Unlike several other eurozone markets that have experienced subdued housing activity, the Iberian Peninsula continues to witness strong residential demand amid constrained housing supply. During the first quarter of 2026, residential property prices increased by 12.9% year-on-year in Spain, while Portugal recorded a 17.8% annual increase, the highest among European Union member states. Mortgage lending has also strengthened, supported by economic expansion, population growth and increased competition among banks for home loans.
The sustained rise in prices has prompted concerns over housing affordability and the possibility of future market corrections. However, regulators and market participants have indicated that the present cycle differs substantially from the conditions that preceded the 2008 financial crisis, when excessive leverage and speculative lending amplified market risks.
In Portugal, where mortgage lending grew by more than 10% year-on-year during the first quarter, regulators have introduced and signalled targeted measures aimed at maintaining prudent lending standards. The country's central bank has reduced the maximum debt service-to-income ratio for new borrowers from 50% to 45%, while policymakers have continued to monitor lending activity without imposing broader restrictions on the market.
Spain has also assessed potential macroprudential measures. The International Monetary Fund has recommended introducing loan-to-value limits on mortgages, although the Bank of Spain has not implemented such restrictions. The central bank has indicated that current lending indicators remain below previous peak levels and has expressed concerns that tighter borrowing limits could disproportionately affect younger homebuyers seeking to enter the housing market.
Official data show that Spain's average loan-to-value ratio stood at 68.4% last year, compared with 71.1% in 2016, while other indicators, including loan-to-income and debt servicing ratios, remain well below historical highs. Analysts have also noted that a significantly higher proportion of new mortgages now carry fixed interest rates, reducing borrowers' exposure to future interest rate increases compared with the period preceding the financial crisis.
Market analysts attribute much of the current price growth to structural housing shortages rather than excessive credit expansion. They note that higher-income households continue to account for a significant share of mortgage borrowing, while persistent supply constraints and favourable economic conditions are expected to continue supporting residential property values across both countries in the near term.
Source - Reuters
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