Bank of Spain Tightens Lending Standards as Mortgages Continue to Rise

MADRID, Nov. 13, 2025 — Spanish banks are issuing more home loans than they have in over a decade. In the first half of 2025, new mortgage lending jumped 26 per cent compared with the same period last year. Loan-to-value ratios have remained around 68 per cent, aligning with long-term averages, while interest rates near 2.66 per cent continue to make borrowing attractive for households.

Banks are competing aggressively to attract borrowers, offering competitive rates and flexible terms. Analysts warn that some lenders may be pushing limits to gain market share, which can increase the risk for both banks and borrowers if conditions change. Low interest rates can make monthly payments manageable, but they also encourage higher borrowing, which could become a problem if rates rise or incomes stagnate.

Demand for housing loans remains strong, driven not only by low borrowing costs but also by steady employment and household income growth. While property prices are rising, they are still below the peak levels seen before the 2008 financial crisis, which has so far prevented widespread affordability concerns. The combination of rising demand, low rates, and competitive lending has prompted the Bank of Spain to step in.

Why is the Regulator Acting Now?

The Bank of Spain is not signaling that a housing crisis is imminent. The economy is performing solidly, employment is robust, and household finances remain generally healthy. Home prices, while increasing, remain far below the peaks of 2007.

Even so, the regulator is taking a precautionary approach. By monitoring lending practices closely, the central bank aims to prevent risks from quietly accumulating within the banking system. It is preparing rules that could tighten lending standards if market conditions suggest growing vulnerabilities. The goal is to act early, ensuring that banks maintain prudent lending practices even in a favorable economic environment.

This approach reflects a broader principle in banking supervision. Acting before problems emerge is generally more effective than responding after risks have already materialized. The Bank of Spain is signaling to lenders that while growth is welcome, it must be measured and sustainable.

Where are the Risks

Supply and Price Challenges: A major source of risk lies in the imbalance between rising demand for housing and limited supply. Construction activity has increased, but it has not yet reached the levels required to meet growing demand. Property prices rose by roughly 10 per cent in real terms during the second quarter of 2025, although they remain well below the peak seen prior to the 2008 financial crisis.

Lending Standards and Affordability: Even though average loan-to-value ratios appear moderate, low interest rates can mask potential risks. Aggressive lending terms and intense competition among banks could create exposure for both lenders and borrowers if conditions shift. Borrowers who take on larger loans assuming rates will remain low could find themselves vulnerable if rates rise or economic growth slows.

The Bank of Spain is particularly focused on how banks are granting mortgages, ensuring that loans are affordable and that borrowers can handle repayment under different scenarios. By keeping a close eye on lending practices, regulators hope to maintain stability while allowing households to access credit responsibly.

Could This Turn into a Problem?

At present, there is no evidence of an imminent housing crisis in Spain. Vulnerabilities in the mortgage market remain far below levels seen before 2008.

Still, rapid growth in mortgage lending, low interest rates, tight margins for banks, and supply constraints make careful monitoring essential. Buyers can take advantage of favorable loans today but should remain aware of potential future risks, including rising interest rates or shifts in household income.

For banks and regulators, the priority is to stay ahead of potential vulnerabilities rather than reacting too late. By monitoring lending practices closely and tightening standards, when necessary, the Bank of Spain aims to prevent problems before they escalate. This approach is designed to support a stable and healthy mortgage market that can withstand changes in economic conditions.

Spain’s mortgage market is expanding rapidly. Loans are readily available, and property demand remains strong. At the same time, the Bank of Spain is signaling caution by stepping up oversight, ensuring that today’s growth does not turn into tomorrow’s problem. By balancing lending opportunities with careful supervision, the central bank is maintaining stability while supporting a healthy housing market.

Home loan growth and low interest rates are prompting banks to tighten lending rules and monitor borrowers closely to protect the housing market.

Inputs fron Diana Chou

Editing by David Ryder