Banks ask for 20% of the selling price to grant a mortgage.
Only one in four under-30s owns their home
The lack of savings and financing problems prevent young people from buying a house
BarcelonaMarc Sales is 26 years old and for six months he has been looking for a way to leave his parents' home. He would like to own a flat but the average amount of a mortgage to buy one in Barcelona is €184,025. He earns about €1,150 a month, so he would need to spend a high percentage of his income on housing, which leaves him with only two alternatives: "Either I stay at my parents' home to save up or I share a rented flat". This is the reality of many young Catalans: despite the increase in the number of mortgages signed in recent months, only a quarter of the under-30s who no longer live with their parents own a house.
According to data from the National Institute of Statistics, in the month of June 5.889 mortgages were signed in Catalonia, 36% more than in the same period last year. As for the sale and purchase of housing, it has grown by 5.5% in Catalonia during the second quarter of this year, up to 22,062 operations. Even so, the percentage of under-30s who no longer live with their parents and own a flat in Spain ranges from 25% in 2019 to 31% in 2020. Before the housing bubble burst, 54% were home-owners, as indicated by a study of LaCaixa Foundation's Social Observatory.
The main causes of this delay in the purchase of housing is the combination of high prices with the general decline in young people's wages and the lack of savings. "The banks do not grant loans without a down payment of 20%, which in Barcelona is close to €70,000. What young person has saved that much money?" explains Josep Maria Raya, professor in the Department of Economics at the Universitat Pompeu Fabra and an expert on housing. According to Idescat, the average salary of a person between 25 and 34 is €21,656.58 per annum, which means that you have to save 100% of your salary for about eight years to be able to pay the mortgage on a flat in Barcelona. In addition, Raya says that the elimination of tax deductions for housing that existed years ago has only discouraged the signing of mortgages. We must also add the fact that many young people are on temporary contracts and change jobs frequently. One of the main criteria for obtaining a mortgage is to have a stable income, so that without stability there is no loan.
On the other hand, those fortunate enough to be able to afford a flat don't get it in the best conditions either. According to a report by the Real Estate Credit Union, young Spanish homeowners are on average 31 years old and have little savings. In fact, they need to finance 90% of mortgages, at an average price of 190,973 euros per home, with loans of 172,675 euros on average across the state.
Despite the fact that 82% of people under 24 prefer to own their homes, as marked by a study by Via Celere Observatory of Housing in Spain, many opt for renting because they cannot enter the property ladder. If in 2008 only 32% of young people lived in rented property, whereas in 2017 the percentage grew to 49%, and this has led to rents soaring. This is when the need to share a flat appears: if a person under 30 has to allocate 91.6% of their income to the rent and 55% to the mortgage, this percentage is reduced by 28% when sharing a rented flat, according to the latest report by the Emancipation Observatory. "In the long run, renting is more expensive than buying, but sharing helps reduce costs," the expert adds. In this regard, financial institutions recommend not to allocate more than 30% or 35% of monthly income to housing in order to cover other expenses.
It is recommended not to allocate more than 35% of income to housing, but mortgage payments are close to 55%.
According to Raya, there are two ways to put an end to this vicious circle: more social housing rentals or creating other financing paths for young people. "The ideal thing would be for young people to become independent with a social rent, from here they move to higher quality private housing as they earn more and after that they end up buying. It is the typical evolution, but without social rent there is no way to enter the market," he concludes. In this sense, the economist points out that only 2% of rental properties in Spain are "social rentals", well below the European average of 15%. On the other hand, Raya believes that banks would have to implement new loans and forms of financing for young people. "A young person with studies who now starts working will climb the labour market and end up earning more," he adds: "The State has to create incentives for banks and young people to obtain cheaper loans and access the property market".