If we are going to request a mortgage to acquire a habitual home, the usual slogan is usually “you need a 20% entry of the value of the home and 10% for expenses”, that is, 30% of the value of the home to start. That means that for a house of 200,000 euros, we need at least 60,000 euros to buy it. And that without thinking about expenses that we may have to make repairs or condition it to our liking, in that case, the amounts skyrocket.
According to the Idealista real estate portal the average house price in September 2021 was 1,813 euros per square meterIn other words, for a 100m2 house, we need about 181,300 euros. But that is in Spain on average, including cheap towns, if we are talking about a home in large metropolitan areas of the country, the situation changes. If we are talking about a home in central areas of Madrid or Barcelona, it is not uncommon to see prices starting at 300,000 euros. That would make your buyers need about 90,000 euros to start.
We may think that in Spain people have high salaries and save a lot, but the truth is that they do not. In 2019 the average salary of a worker was 24,395 euros and the most frequent of 18,489, annually. We could then assume that if the real estate market does not stop selling flats like hotcakes (because it does so despite Covid19) and salaries are low, thatthat home buyers are money-saving machines until they reach the desired 30%.
But the truth is that this is not the case. The average saving rate in Spain before the pandemic was between 7.9% in 2013 and 5.6% in 2018. In 2019 it was 6.3% and in 2020 it was 14.8 %, although we are not talking about a normal year. In other words, a salary of 18,000 euros net (1,500 per month) with a saving of 15% (which would be more than the national average) would save around € 225 per month, which is to say € 2,700 per year. To be able to buy an average house in Spain of about 75m2 and € 1800 / m2 that would cost 135,000, you would need € 40,500, it would take fifteen years to reach this amount. Seven and a half years if we are talking about a couple. This without assuming that they have not saved for anything else. But it is that if we go to the national average of the last years, the times are doubled. It is unreasonable to believe that people in Spain spend 30 years saving to put the entrance of the house, if they started at 25 they would end at 55 or 40 if they do it as a couple.
The question is, how do Spaniards manage to buy a home despite low savings rates and low salaries?
First of all: this it is not a recommendation to buy a home using any of these tactics. In fact, I personally believe that having 30% of the home saved is a good risk control method. If there were a real estate crisis again and housing falls by 20%, we are not in “negative equity”, that is, a position where debts are higher than the value of the assets that we have that back them. If we have also been paying off the mortgage, the value of the debt may be lower.
Rent with option to buy: it is something difficult to find, but there are cases. In a contract of this type, the amounts paid for rent partially become part of the payment of the house, if we have also been saving it may be a good idea. Possibly the least risky tactic of all those discussed here.
They request postpone the payment of the Tax on Patrimonial Transmissions, possible under certain circumstances. But it accrues interest to the autonomic Treasury. Not valid for new housing, on which VAT is paid.
Mortgages for more than 80%: If we have gotten a bargain, buying a home below its appraised value, congratulations, there are banks that accept the appraised value to pass the 80% limit. It has also recently been announced by a bank that they will grant mortgages for 95% of the value of the home if the future owner meets certain conditions (mainly age and job stability).
Donations or loans from relatives: Parents often financially support their children so that they can buy a home, either through donations or loans. This provided that the family members have a comfortable economic situation, with savings that they can do without in the coming years. When it is a donation, it is still a kind of advance of the inheritance.
Off-plan home purchase: Usually when a real estate development of a new home is carried out, the future owners pay the developer during the construction of the same, which can last a couple of years. That makes it easier for homeowners to buy a home by giving them extra time to shop and save. This only applies to those promotions that are starting, if we catch it half, we may have to make all the payments in a matter of six months.
Family members take a personal loan: Sometimes parents even take a personal loan to finance the entry of their children’s home, that the parents may return or the children (who are the true beneficiaries) may return. It would be the risky version of family loans or donations.
They ask for a personal loan in another financial institution few days before execute the purchase– Possibly the riskiest tactic of all. The 80% limit is designed for better management of personal risk by the home buyer. That is why I do not recommend it, although it is still true that it is something that is done.
The price of housing and its accessibility is something that is not happening only in Spain, but throughout the world. Bloomberg just posted about how this problem looks in London, Paris, Melbourne, Buenos Aires, Toronto or Singapore (if you don’t fit the HDB criteria that favors heterosexual couples). ANDLet’s hope that the search for a home does not lead us to a systemic risk as we already had with the financial crisis of 2008.
Ask the readers Do you know people who have used these or other options to buy a home without having saved 30% of the purchase price of it? How did the play go?
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