Mortgages in small and large cities, are there differences?

10 April, 2024 | Antonio Beltrán

The world of mortgages and the real estate market are closely related. At Hipotecas Plus, we are well aware of this; the majority of individuals, families, and businesses turn to a mortgage loan to acquire a property, whether it’s a home or a commercial premises.

Moreover, mortgages provide us with a perspective on how the economy moves and what the social and geographical characteristics of a country are.

Our country, Spain, is a very diverse territory regarding characteristics such as size and population density, and it’s easy to wonder if there are differences in mortgages between small and large cities.

Our readers already know that we like to quickly respond to the questions that arise among the citizens, and our answer will be direct and clear:

Yes. There are many significant differences in mortgages between small and large cities.

Differences between small and large cities in Spain

We are well acquainted with the wide variety of cities in our country and the significant differences between them, such as access to services, size, population density, economic opportunities in terms of finding work or starting a business, and their tourist appeal.

The significant differences between Spain’s largest cities, like Madrid, Barcelona, and Valencia, through to intermediate cities, down to the smallest population centers, come immediately to mind.

Large metropolises attract a diverse population in search of employment, entrepreneurship, and opportunities.

However, small cities and towns also offer their appeal and charm in other areas, such as more tranquil lifestyles, healthier from an environmental standpoint, a much lower cost of living, and more cohesive and familiar communities.

Differences in the Real Estate Sector

In the real estate world in Spain, we have gone through many ups and downs in recent decades. We experienced a significant real estate bubble that originated in the economic expansion phase and was excessively fostered from many sectors, attracting many investors and speculators.

By the end of 2007, we reached the international financial crisis and our own burst of the real estate bubble. Then we lived through long and hard years of slow and painful recovery with very low-interest rates, even reaching 0% to boost the economy.

Currently, we are faced with high-interest rates in an attempt to deal with high inflation caused by Covid-19 and the war in Ukraine, events that have had significant political, economic, and social repercussions.

Over the course of all these years filled with such significant events, the real estate and mortgage sectors have been clearly affected.

Housing Prices and Mortgages

For example, the largest cities like Barcelona or Madrid have experienced housing prices that have reached historical highs.

However, mid-sized and small cities have seen more moderate growth, but have undoubtedly also been affected by the economic cycles we have indicated.

Access to Housing

And what about access to housing? It’s no secret that the demand for housing in large cities far exceeds the supply available.

This has led to soaring prices, both in terms of buying a home and renting, making it in the latter case, often impossible to find at reasonable or affordable prices for an individual or family with an average income.

Mortgages clearly reflect this dynamic, and thus in the larger cities, they contain terms that make them more expensive and therefore account for a significant proportion of the monthly income of the applicants.

In smaller cities, with a much larger housing supply, prices are lower and mortgage conditions can be more attractive and affordable for customers, although, as we will also see, there are factors which small cities play against when it comes to mortgages.

Competition Among Financial Entities

It’s important to note that in large cities, there is greater competition among banks when offering mortgages, and as a result, they generally offer slightly lower interest rates to attract as many clients as possible.

Access to banking in large cities is much higher. Financial entities in small cities have a more limited presence, and therefore customers have fewer options to choose from, which can lead to higher interest rates.

Relationships Between Banks and Their Customers

In small towns, social and family relationships are stronger and more consolidated.

This can lead to greater trust and a higher valuation of the long-term relationship between the bank and the customer, which can also translate into advantageous conditions on mortgages for some customers, although not universally for all.

Statistical Data

We also want to offer you statistical data regarding housing prices, which are evidently free from subjectivity and generalities, allowing us to provide more comprehensive information with this article.

According to the evolution of housing prices and how the square meter is situated in different cities, we will realize that there must necessarily be clear differences between mortgages granted in large cities and small ones.

The National Institute of Statistics (INE) indicates in terms of the annual variation rate the housing price index, which has been situated at 4.2%. The annual variation of new housing was 7.5% and for second-hand homes, it was 3.6%. It seems then that the housing price is resisting to decrease. Currently, we find ourselves in a scenario with high interest rates that have made mortgages more expensive.

If we perform a quarterly comparison, there is indeed a decrease between the third and fourth quarters of 2023 in housing prices of -1.1%.

The Idealista portal provides us with extensive information on how the price per square meter varies among the different Autonomous Communities and their cities.

The price per square meter in Spain in February 2024 is €2,056, representing an increase of 0.4% compared to the previous month and a rise of 1.5% compared to the last quarter.

Cities with very expensive housing

Based on this average, we find cities that clearly exceed it, such as Barcelona (€4,310/sqm), Madrid (€4,268/sqm), San Sebastián (€5,392/sqm), Palma de Mallorca (€3,933/sqm), or Bilbao (€3,277/sqm).

Cities with expensive housing

Cities that are not so far from the average but still have high prices include Cádiz (€2,814/sqm), Málaga (€2,718/sqm), or Tenerife (€2,614/sqm).

Cities with much cheaper housing than the average

Cities that are clearly below the average include Jaén (€1,157/sqm), Teruel (€1,342/sqm), Ávila (€1,249/sqm), Palencia (€1,325/sqm), Zamora (€1,127/sqm), Ciudad Real (€1,232/sqm), Lleida (€1,205/sqm), Castellón (€1,277/sqm), Cáceres (€1,266/sqm), Lugo (€1,247/sqm), and Murcia (€1,269/sqm).

As we can see, there are several factors that influence the price of housing and consequently the mortgage to achieve its purchase: the size of the city, its tourist attractiveness, the opportunities the city offers in terms of work and entrepreneurship, access to services, and the law of supply and demand, which ultimately encompasses and summarizes all the aforementioned factors.