This rise interest rates and its correlation with euriborThe reference index for variable mortgages clearly makes it difficult to access housing, especially for low income earners. Once the ‘free money’ phase is over, at least for the next few years, Spaniards must face Buy a house in a worse situation compared to just a year ago.
This affects people unevenly based on household income criteria. Because? First of all, because in many cases buying a new home requires replacing the previous one. This means that the old one is sold to pay for the new one, with or without a separate mortgage. However, those who do not own real estate Minimum 25% or 30% savings on acquisition cost To meet bank and tax requirements. Similarly, those with higher salaries can get a larger mortgage, while those with lower incomes cannot.
Euribor, which has not decreased since December of last year, is at levels above 3% and reaches about 3.7%, 38% of Hispanic families, over seven million can’t afford a second-hand house for more than 170,000 euros because the bank does not lend to them. If the family needs to invest more than 35% of their monthly income to pay off the debt, the financial institution will not give the mortgage; According to data collected by Enrique Martín Barragán, IEB professor and former director of JLL and Sareb, and compiled by Javier Sánchez, CTO of Spanish developer Aedas Homes, in the ‘Unreal Estate’ newsletter.
What happens if Euribor rises?
According to the data of the National Institute of Statistics (INE) updated in 2020, the number of households in Spain exceeds 18.75 million. In the worst-case scenario where Euribor reaches 6%, levels not reached during the 21st century, even though 61% of households would not be able to own a home before. Used flat for 170.000 Euro because the annual income required for this is 35.000 Euro. This is exacerbated by a base of 250,000 euros, of which 85% have been taken off the market as more than 51,300 euros of revenue per year are needed.
In more plausible scenarios where Euribor rises from 3% to 4%, at least 1.5 million households will no longer be able to buy second-hand homes for 170,000 Euros as mentioned above. In the case of new construction, 6.75 million households could reach 3%, based on the INE’s average income, which would be just 5.25 million at 4%. This means The proportion of Hispanic families without access to a 250,000 euro home will increase from 64% to 72%.
Forecasts of financial institutions such as ING already point to what is to be seen. Over 4% interbank loan interest could be real before the end of the yearUnless the European Central Bank stops interest rate hikes. It’s been around 3.7% in recent weeks, although it has corrected close to half a point after the recovery of Silicon Valley Bank in the United States and the acquisition of UBS to bail out Credit Suisse.
1,000 Euro mortgage per month
Increased cost of borrowing directly affects purchasing power owned by families. This can be clearly seen with a graph that exemplifies how much a person can pay for a house, given that the monthly mortgage payment is 1,000 euros, the loan term is 30 years, and the variable Euribor rate + 0.5%. With these features, the bank monthly net income of over 2,850 euros the portion of the salary allocated to meet the debt not exceeding 35%.
In 2020 and 2021, with a mortgage payment of 1,000 euros per month, a family could buy a property for more than 425,000 euros, or even close to 450,000 euros. Now, in 2022, that purchasing power has drastically diminished with Euribor at over 3%. With a monthly fee of 1,000 Euros, a person requesting a loan can only A house that costs around 267,000 Euros. As can be seen in the chart, the decline in purchasing power is greater than that recorded in the last stages of the real estate bubble.
Considering these data recipient only contributes 20% login to buy housing. If it is a substitute where a person sells their property to buy a larger property, the leverage demanded may be lower and with it they will have more purchasing power.
Maximum Effort Rate
This situation, which is not at all positive for the less affluent classes’ access to home purchases, raises another problem, Household effort rate at the highest level in the last ten years. According to one of the latest reports by CaixaBank, families already set aside 38% of their income to pay off their mortgages. The main reason for this is that the increase in interest rates and the increase in installment costs due to Euribor affect only floating rate loans.
HE Bank of Spain recommends that effort ratio not exceed 35%Avoid situations such as real estate bubbles where 50% levels are exceeded. After the boom, families and companies gradually reduced their debt until they reached more reasonable levels. CaixaBank estimates that this indicator could drop slightly by the end of the year as long as house prices are under control or posting slight declines.