Buying a home in Spain and Portugal is becoming harder as house prices continue to rise sharply, putting homes out of reach for many buyers. The rapid increase has pushed both governments to keep a close watch on their housing markets over affordability concerns, although they have not introduced broad lending restrictions.According to Reuters, house prices in Spain rose 12.9% year-on-year in the first quarter of 2026, while Portugal saw an even bigger 17.8% jump, the fastest annual increase in the euro zone. The surge has been driven by strong demand amid limited housing supply, economic growth and rising immigration. Additionally, mortgage lending is rising despite higher borrowing costs.Spanish banks have significantly expanded their lending, with outstanding housing loans reaching around €496 billion. Data from the Bank of Spain also shows a growing share of new loans being issued with high loan-to-value ratios. This has led to calls for closer monitoring of lending standards.As per Reuters, the International Monetary Fund (IMF) had recommended Spain to consider introducing formal loan-to-value limits for reducing financial risks. However, the country believes that stricter borrowing limits could make it even harder for first-time and younger buyers to enter the housing market.However, Portugal’s central bank has taken a more proactive approach. Reuters reported that the country recently reduced the maximum debt service-to-income ratio for new borrowers from 50% to 45%, tightening borrowing limits for home loan applicants.Both countries had experienced a similar boom, which was then followed by the 2008 global financial crisis. However, their governments have dismissed the current pattern to be heading that way.When adjusted for inflation, Spanish house prices remain below their 2007 peak, while mortgage lending standards are generally considered stronger than they were before the financial crisis. A significantly larger share of borrowers now hold fixed-rate mortgages, reducing households’ exposure to rising interest rates, Reuters reported.Economists cited by Reuters also argue that the current housing boom is being driven more by structural supply shortages than by excessive credit growth. The pace of new housing construction has failed to keep up with demand, particularly in Spain, where a shortage of new homes continues to support higher prices.In Portugal, housing supply has also lagged behind demand, contributing to sustained price growth despite tighter monetary policy.Regulators have therefore adopted a cautious approach, balancing financial stability concerns with worsening housing affordability. While authorities continue to monitor mortgage lending and household debt, Reuters reported there is currently little appetite for aggressive macroprudential measures, as policymakers seek to avoid restricting access to housing finance for creditworthy borrowers.
