More expensive, more expensive to finance if you want to buy and heavier if you only want to rent. The access to housing in Spainwhich has never been easy for families, has tightened in recent months due to rising prices and interest rates: the 0.5 point increase granted by the European Central Bankalready largely discounted by the markets, is only a symbolic milestone that marks the definitive end to cheap mortgages. And the alternative to buying, renting, also demands more and more effort from Spanish households.
First because prices in both cases have increased significantly in recent months: according monthly reports prepared by the Idealista real estate portal, rent has increased by 5.6% since the beginning of the yearwhile buying a house now costs 2.5% more only in December.
These are downloads lower than inflationbut what they bring prices per square meter closer to their historical maximums and remove the barrier that households must overcome, especially young people, to have a home. Because, when these prices are related to income, we realize that it is increasingly difficult to open the doors of a house.
More expensive mortgages
If you intend to buy, the effort rate that households have to assume is increasing tirelessly. The latest calculation from the Bank of Spain is that an average household must devote 34.3% of their disposable income to paying the mortgage in the first year, whereas before the pandemic it did not reach 31 %.
The Bank of Spain itself recommends that the mortgage payment should not exceed 35% of income, so the rate is already close to the recommended limit. And like the interest rate continue to rise – the ECB is preparing a new rise for September, probably by an additional 50 basis points, and the Euribor, the main benchmark rate for mortgage loans, is already close to 1% – this effort will be greater.
“The impact of rising interest rates is going to be huge,” he says. Paloma Taltavull, professor of applied economics at the University of Alicante and specialist in the real estate market“because it dramatically increases the amount of monthly payments on new mortgages and makes affordability much more difficult.”
Taltavull and his team develop an accessibility rate which differs methodologically from that developed by the Bank of Spain -for example, it does not take into account the income of the household, but rather that of its main breadwinner-, but which shows a similar trend. For a 20-year mortgage, the percentage of income that matures in the first year is 35.2%, while at the end of 2019 it barely exceeded 30%.and if the loan is extended to 30 years, it is reduced to 25.4%.
However, experts agree that the monthly mortgage payment is not the main problem, but the barriers that families must overcome to access this financing. Above all, a considerable number past savings: banks finance up to 80% of the value of the house, so it is necessary to have funds to pay the remaining 20% and all expenses related to the sale and the loan, such as taxes, notary or housing valuation.
“Buying a house is almost something for the wealthy today,” he says. Joffre López, researcher at the Barcelona Municipal Housing Observatory and co-author of the semi-annual reports prepared by the Emancipation Observatory of the Spanish Youth Council. “Although mortgages have increased, we are not at the level of 2007 or 2008. But people who need their first home generally have irregular incomes, they do not have savings, and their main stone of “Stumbling is all they ask of you before signing the mortgage, from guarantees to insurance. It’s an endemic problem”.
Added to this is the fact that, since the bursting of the real estate bubble, financial entities are much more restrictive when granting loans. The result, as Paloma Taltavull points out, is a very tight mortgage market, which “has not yet recovered from the collapse” of this crisis: in 2021, the best course for a decade, barely 418,000 mortgages worth 57,634 million euros were granted. euros, whereas in 2007 they were triple, with 1.2 million loans worth 184.427 million.
The consequence of all these difficulties is that many people are forced to live in rentals without wanting to. “The drift towards renting should be optional, due to a sociological change, but, in reality, a forced shift towards renting is taking place,” he explains. Carolina Roca, President of the Association of Property Developers of Madrid (ASPRIMA). “There is a small part that responds to the fact that in Spain we had a rental decision deficit, but most of it is due to the inability to access the purchase, due to these barriers to the entrance.”
More effort to rent and buy
And it is that, although the vital options of families may lead them to prefer renting, From a strictly economic point of view, the effort rate of renting is higher than that of buying.. The latest report from the Emancipation Observatoryas already seen, indicates that the cost of access to owned accommodation with mortgage financing for a young household – that is, whose members are between 16 and 29 years old – was 26.4 in the first half of 2021%, while rent takes 42.2% of your income.
This effort is also increasing, as revealed by a report prepared in June this year by the consulting firm Ernst & Young for ASPRIMA, which compares what percentage of income was to be spent on paying rent in 1997 and in 2020. His conclusion is that, for a worker, the rate of effort had doubled during these two decades to represent more than two thirds of his salary. And for a retiree, an average rent already represents more than all of his income.
Although more restrictive, many families who do not have access to mortgage financing must rent, which leads them to compete in a market with “a rare and expensive offer”, in the words of Joffre López, especially in the big capitals. Carolina Roca also points out that, while demand is increasing, Spain lacks “a real estate structure dedicated to renting in a professional way, we were not prepared to absorb this increase, which causes tensions”.
In this sense, all the experts consulted agree that one of the underlying causes of difficulty in obtaining a home is the lack of supply, both to rent and to buy. Taltavull points out that there has been a “sharp” decline in house building over the past decade and Roca points out that the construction of officially protected housing, which allows affordability, has practically stopped in the past 12 last years. “There is no supply of affordable housing, whether public or private”remarks Lopez.
A problem also for retirement
The shortage of supply is also appreciated when observing the sale of houses, which was once divided almost 50% between new houses and second-hand houses, now it is monopolized by second-hand houses: so far this year, 81% of transactions are second-hand homes and only the remaining 19% are new homes, indicating a high real estate turnover despite the demand for housing.
The result of all this is that Spaniards are finding it increasingly difficult to access housing, and when they do, they usually pay a high cost. The most affected are youthwho have the lowest rate of emancipation of this century – less than 15% manage to become independent before the age of 30 – and who have to resort to formulas which do not always meet their needs, such as shared rent.
Data from the National Institute of Statistics on housing tenure reveals that, since 2012, young people under the age of 30 have mostly rented accommodation, which is also gaining ground in the age group between 30 and 44, and even among the older sections of society. This is a trend that anticipates a problem in a decade or two, since home ownership is also a savings vehicle.
“It’s a vicious circle: in the rental market, young people cannot save, especially when prices rise, and they will never be able to obtain this preliminary amount which allows them to buy”, explains Paloma Taltavull. Yes when they have to retire, their pension will barely cover the rentas Carolina Roca warns: “At the moment, there is a large majority of retirees who do not have to allocate a single euro of their pension to housing. But when this cohort of tenants reaches retirement, they won’t be able to afford it.