While Spain’s new mortgage guarantee scheme aims to help 50,000 people get on the property ladder, there are concerns that it will have a negative impact on housing prices, based on the experiences of similar measures implemented in the United Kingdom a decade ago.
The Spanish government has recently approved a new measure, a mortgage guarantee, to help young people and families with minors access the purchase of a home without the need to have 20% of the down payment saved.
The mortgage guarantee means that the government will underwrite 20% of the mortgage that is contracted to finance the purchase of a home through a Line of Guarantees activated by the Official Credit Institute (ICO). It will allow banks to grant up to 100% of the price of the house in the mortgage, and individuals will only need to contribute 10% of their savings towards expenses and taxes derived from the operation.
The government has set certain conditions to access the mortgage guarantee, such as being under 35 years of age, having an income of less than €37,800 gross per year, not owning a home, and using the house that is bought for habitual residence. The ICO will process the mortgage guarantee request through around 30 member banks, but the aid is linked to the granting of bank financing.
The scheme aims to help young people and families access the property market by providing a government backed mortgage guarantee of up to 20% of the mortgage for those who have enough income to pay their monthly installments but not enough savings for the 30% down payment required to buy a home.
The average purchase price in Spain is €1,951/m², which means that buying an 80m² home costs around €156,000, for which a down payment of €31,200 plus €15,600 for expenses and taxes is needed, which amounts to a total of €46,800. By guaranteeing the 20% of the mortgage, the mortgage guarantee enables young people and families to access the property market more easily, as they will only need to contribute their savings towards expenses and taxes derived from the operation.
However, not all the requirements have been published yet, such as the maximum amount that will be guaranteed or the maximum price of the home that can be purchased.
While Spain’s new mortgage guarantee scheme aims to enable 50,000 people to get onto the property ladder, there are concerns that it could have a bad effect on housing prices.
Similar measures have been launched in other European countries, such as the UK’s “Help to buy” programme, which was launched in 2013 and scrapped in March 2022, as it caused housing prices to skyrocket. This move provided state mortgage guarantee of up to 95% for lower-income families.
While the scheme did help many families achieve homeownership, it also led to a significant increase in housing prices. As a result, the program was scrapped in March of last year.
It is worth noting that the new mortgage guarantee scheme will do little for the underlying issue of Spain’s housing crisis. The lack of affordable housing is a complex problem that requires a comprehensive solution, including measures to increase the supply of affordable housing, regulate rental prices, and address the issue of vacant homes. While government is trying to sort out this problem with other measures, this is probably not one that will help a lot.
This article is brought to you by Expat Hub Valencia, a property buying agent in Valencia. Using the Expat Hub’s services, you will be able to successfully navigate Valencia’s complicated property market in no time.