Spain and Portugal are stepping up scrutiny of their soaring property markets amid early signs of overheating, but supervisors are unlikely to intervene heavily yet, with the market some way from resembling past boom and busts.

Market Boom

Unlike elsewhere in the euro zone, the Iberian peninsula is seeing a real estate market boom amid strong demand and tight supply, with Spanish house prices up 12.9% year-on-year in the first quarter and growth in Portugal at 17.8%, the highest in the EU.

Mortgage lending is also strong, with Spanish banks including Santander and BBVA competing fiercely to lend as robust consumption and high rates of immigration make Spain one of the bloc’s fastest-growing economies.

Regulatory Response

In Portugal, regulators are signalling or introducing some limited measures to cool the market. On Thursday the central bank asked lenders to lower the maximum debt service-to-income ratio for new borrowers to 45% from 50%.

Supervisors in Spain are monitoring whether intensifying competition among banks could lead to looser conditions, particularly for higher loan-to-value borrowing, a senior Spanish banker said.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.