The Bank of Spain has alerted public administrations about the potential consequences public guarantees for home purchases could have on the housing market. The regulator argues that in a context of tight supply and strained markets these guarantees tend to push sale prices higher. The impact of the measure is seen as modest in large cities where accessibility to housing is already a problem.
The 2023 annual report notes that public guarantees, along with tax incentives and demand support transfers, could add to price and rent pressures in tight markets. These demand-side policies aimed at helping vulnerable households may, in large part, become a transfer of public resources to property owners, the report explains.
In addition to lifting prices, the national financial regulator warns that the group potentially benefiting from such measures in stressed areas is small. This claim rests on the strong link between income and wealth, which means households with limited savings rarely meet the income requirements lenders use to approve mortgages. In the current mortgage rate environment, a significant share of potential applicants would struggle to obtain loan approval because their payment obligations would exceed prudent thresholds relative to income.
The organization led by Pablo Hernández de Cos indicates that the main access barriers to home ownership, whether for purchase or for rental, are concentrated in major urban centers such as Madrid, Catalonia, the Balearic Islands and Andalusia. It also forecasts that if public guarantees existed, their reach would likely be greater in areas with lower housing prices outside the main metropolitan regions.
The Bank of Spain’s firm stance on guarantees came on the same day that the Ministry of Housing and Urban Agenda and the Ministry of Economy signed an agreement to regulate 2.5 billion euros in public guarantees through the Official Credit Institute to back home purchases by young buyers under 35 and families with dependent children. This measure, announced by the government head a year earlier, is being implemented alongside similar programs already in place in several autonomous communities such as Madrid, Andalusia, Galicia and Murcia.
Household income limits access to credit
When buying a home, lenders typically require two conditions. First, a down payment to cover 20 percent of the price plus taxes and purchase costs (roughly 7 to 12 percent of the purchase value). Second, the monthly mortgage payment should not exceed around 35 percent of net household income. Public guarantees ease the first hurdle, but the regulator says the second remains limited. The measure does not substantially lessen the burden on households, because the expenditure ratio of housing costs to net income tends to rise for those who receive an guarantee. A small share can still access better housing quality or larger homes, but this can push a portion of households into a mild excess of housing-related indebtedness.
An analysis from the central bank notes that the potential beneficiaries in high-demand areas are limited because debt-service obligations often outstrip the income gains of these households. In practice, the guarantee helps a narrow group to obtain mortgage finance and potentially upgrade housing, yet the overall effect on the broader market is restrained.