The ‘B-side’ of the Government’s guarantee for young people to access a mortgage
The measure announced by the President of the Government, Pedro Sanchezthis past Sunday in the run-up to the electoral campaign, guaranteeing up to 20% of the financing to those young people or vulnerable families who want to buy a home, but who do not have sufficient savings to pay the down payment could bring in the future positive but also negative consequences.
The first thing they point out from the iAhorro mortgage comparator is that “it is important to know that the fact that they give you an endorsement it helps simply to jump the first step access to housing, but it has its cost: if the bank, instead of financing 80% of the price, finances 100%, the fee that the mortgaged person will have to pay each month will rise and, therefore, it will also increase their risk of indebtedness”. This could lead to a new housing bubble.
“We could go back to what we lived in 2008. At that time, people paid monthly installments for their mortgage higher than recommended and, when the crisis came, many were left without work and were no longer able to pay those high fees. For this reason, it is very important to follow the recommendation of the Bank of Spain, which was made very clear in the Mortgage Law of 2019”, warns specifically the director of iAhorro Mortgages, Simone Colombelli.
This recommendation is that financial institutions only grant mortgages to those customers who can meet the monthly fee without allocating more than 30 or 35% of your monthly net salary to repay the mortgage loan.
How can you reduce the risk of indebtedness?
Until now, the recommendation made by the Bank of Spain was a point that almost no entity dared to skip, but now with the Government’s announcement it is not clear if they will comply to the letter. Because? The more funding, higher debt riskbut in this case a percentage of the financing would be guaranteed by the ICO (Official Credit Institute) and that would give them a greater security banks when it comes to extending their financing: they know that if the mortgaged party does not pay, the ICO will pay at least 20% of the financing granted.
For example, if the home had a value of 150,000 euros, the Government would guarantee through the ICO 30,000 euros that the mortgaged party would have to repay together with the remaining 120,000 euros throughout the life of the loan. However, if you stop paying, the bank is sure that at least the guaranteed 30,000 euros will be recovered.
Faced with the possibility of reaching this extreme, iAhorro recommends future mortgagees to buy a cheaper house or extend the term of the mortgage to pay lower installments and reduce the risk of indebtedness.
Spain, the fifth European country with the least emancipated
Simone Colombelli believes that the Government’s measure “could benefit 95% of young Spaniards” and also would increase the percentage of emancipated in our country, until now at the tail of Europe in this regard.
Specifically, according to the latest data published by Eurostat, corresponding to the year 2021, Spain is in fifth place by the tail as far as independent young people are concerned, with 35.5% of the total. Behind them are only Croatia, with only 23.5% independent (or, what is the same, 76.5% of young people between 18 and 34 who still live at home with their parents); Greece, with 27.1%; Portugal, where the percentage of emancipated youth is 27.7%, and Italy, with 29.5%.
In addition, in our country the number of independent youth has fallen year after year and in the last decade it has been reduced by up to ten percentage points: from the 45.9% it reached in 2012 to the current 35.5%. And that between 2020 and 2021 there was a slight recovery by going up one percentage point.
On the contrary, it is in Denmark (with 84% of its young people already living away from their parents), Sweden (82.70%) and Finland (81.80%) where young people between the ages of 18 and 34 have easier to become independent. These countries, moreover, are the only ones that are more than 80% independent; then comes Germany (70.20%), with an increase of up to 14 points in the last decade, from 56.20% in 2012.