The European Property Market Is Growing Again

After a period of slowdown driven by inflation and a sharp rise in interest rates, residential property prices across Europe are rising again. Eurovilla closely follows these trends because developments in the European market also influence the decisions of Croatian buyers, financing conditions and foreign investors’ interest in Croatian real estate.

However, the current upswing is very different from the period when ultra-low borrowing costs strongly supported demand. Property prices are rising again, but buyers now face much tighter lending conditions and higher monthly repayments.

Property prices are rising again

According to Eurostat, residential property prices in the European Union were 5.1% higher in the first quarter of 2026 than in the same period a year earlier. In the euro area, annual growth stood at 4.7%. Compared with the previous quarter, prices increased by 1.2% in the EU and 1% in the euro area.

These figures suggest that the European property market has largely moved past the short period of correction and stagnation. However, Europe is far from being a single uniform market. While some countries are recording double-digit growth, prices elsewhere remain stable or are rising only gradually.

These differences reflect housing supply, population growth, local income levels, tax policy and the pace of new construction. Cities with strong demand and limited supply continue to see price growth even when mortgages are more expensive.

Mortgages still come at a significant cost

The average cost of new housing loans in the euro area was approximately 3.45% in May 2026. At the beginning of the year, it was slightly lower at around 3.35%, showing that borrowing does not automatically become cheaper simply because the peak in interest rates has passed.

A difference of one or two percentage points can add tens of thousands of euros in interest over a long mortgage term. Buyers should therefore look beyond the purchase price and the size of their deposit and consider the total amount they will ultimately repay to the bank.

The type of interest rate also matters. A fixed rate offers greater certainty, while a variable rate can become either cheaper or more expensive depending on future market conditions. The decision should be based on your own financial resilience, not on the assumption that rates are bound to fall soon.

Why are prices rising despite higher borrowing costs?

At first glance, it may seem surprising that property prices are rising while financing remains relatively expensive. One of the main reasons is limited supply.

In many European cities, new housing construction is not keeping pace with the growth in households and demand. Planning and permitting processes are slow, development land is limited, and construction, labour and financing costs remain high. This is one of the reasons the European Union is seeking to simplify construction and renovation procedures and reduce administrative barriers as part of its affordable housing initiatives.

The long-term trend shows just how deep-rooted the problem is. Between 2010 and 2024, property prices in the EU rose by a total of 53%, while rents increased by 25%.

When the supply of quality homes remains limited, buyers with more equity can continue purchasing despite higher borrowing costs. That keeps pressure on prices, particularly in attractive urban areas and popular tourist destinations.

Buyers are becoming more cautious and selective

Higher financing costs do not necessarily cause prices to fall immediately, but they change buyer behaviour. A larger share of the monthly budget goes towards mortgage repayments, leaving less room for renovation, furnishing and unexpected expenses.

As a result, buyers are scrutinising properties more carefully, paying closer attention to energy efficiency, the condition of the building and the level of investment required. A property in need of a complete renovation may be less attractive if those works also need to be financed with borrowed money.

Overambitious asking prices are becoming harder to justify as well. A high-quality property in a good location can still attract several serious buyers, while an average property with an unrealistic price may remain on the market for months.

What does this mean for investors?

During the period of very low interest rates, some investors assumed that capital growth would make up for relatively modest rental returns. Today, that strategy carries more risk.

If a purchase is financed with a mortgage, investors need to compare borrowing costs with realistic net rental income. The calculation should include vacant periods, maintenance, insurance, taxes, building reserve contributions and management costs.

A property can rise in value while still producing negative monthly cash flow. That makes it more important than ever to be clear about the purpose of the purchase: rental income, long-term capital preservation, personal use or a combination of these goals.

There is no need to wait for the perfect moment

Buyers often try to time the market, hoping to buy when both property prices and interest rates are at their lowest. The problem is that these conditions rarely occur at the same time. When borrowing becomes cheaper, demand can rise and push prices higher again.

A more practical approach is to assess whether a particular property suits your needs and whether you can comfortably afford its total cost. A sound buying decision should be based not only on the direction of the market, but also on the quality of the property, financial sustainability and how long you plan to own it.

Eurovilla helps clients put market data into the context of a specific property’s real value. Contact us to make your purchase, sale or investment decision based on reliable information rather than short-term market expectations.