Subsidize 20% of the mortgage for people under 35, a patch on the housing problem

2023-06-11 06:18:03

Imagine that you are 25 years old and have a stable job. you decide what is good time to become independent and make the leap from your parents’ house to your own. You think that buying is a better option than dedicating the rest of your salary month by month to a rental and you enter the real estate portals in search of the house of your dreams, which will not be so big, nor in one of the best areas Not as perfect as you had imagined. But you will end up conforming.

In the Canary Islands, the price per square meter in May 2023 was 2,220 eurosaccording to Idealistic. While prices continue to rise, wages are not advancing at the same rate as the cost of living. What does a young person face in the Canary Islands when buying a home?

ICO credits

In May of this year, the Government gave the green light to the creation of a new line of guarantees for the Official Credit Institute (ICO) intended to cover up to 20% of the mortgages of young people under 35 years of age with annual income of up to 37,800 euros and families with dependent children. The Executive has decided to articulate a line of guarantees so that the ICO can cover up to 20% of the principal of the credit offered by the banking entities. This amount may be increased by five additional points if the dwelling in question has a type D or higher energy rating and may be requested until December 31, 2025, although there is the possibility of an extension of two more years.

The Government, according to preliminary calculations, anticipates that the measure may benefit about 50,000 people, although it is possible that the range is wider. In turn, the estimated cost of the line of guarantees, according to provisional calculations, amounts to €2.5 billionwhich implies an average guarantee of 50,000 euros per beneficiary.

Emancipation

Youth emancipation is one of the great pending subjects in the Canary Islands and in the rest of Spain. In addition, the rise in interest rates does not make it easier to launch into the purchase of a home either because it has given way to more expensive and less accessible mortgages. Likewise, the rate of financial effort —an index that reflects the average number of years it would take a family unit to pay for a house if all its income were used for it— has skyrocketed, reaching maximums since the financial crisis, that is, that the Households dedicate 32.2% of their salary to paying the mortgage —in 2009 it was 36.6%. According to data from Statistics National Institute (INE), the tendency to reside in a home that is owned has decreased in the last ten years to 75.2%.

Faced with this panorama, and seeing that the rental price does not facilitate the emancipation of Spanish youth either, the Government announced guarantees from the Official Credit Institute (ICO) for cover 20% of the mortgage loan for people up to 35 years of age and families with dependent minors.

Flats for sale / EFE

Reality

A couple with an average salary of 1,300 euros net per months each one has found what could be their future home. It is a newly built house that costs 161,500 euros. An apartment located in a central municipality of Gran Canaria de 76 square meters, two bedrooms and two bathrooms.

They can’t afford to buy so the next step is to ask for a mortgage. The most it contributes the bank is 80% of the price of the house, 129,200 euros to be paid in 25 years, that is, until they turn 50. The first year they have to pay 516.11 euros per month and from the second 779.20 euros. Also, before facing the mortgage signing they must have saved 46,497.37 euros for the entrance of the apartment and cover notary, agency, registration or appraisal expenses, among others.

Do ICO credits work?

After the announcement by the Government of the implementation of the ICO loans for mortgages, the general director of Economy and Statistics of the Bank of Spain, Angel Gavilanwarned that these conjunctural measures are not “a miracle formula to resolve imbalances in access to housing”, since it is a structural problem. “It is a problem that has many edges. There is no solution that resolves it immediately,” said Gavilán. The general director of Economy and Statistics has explained, as stated in the 2022 Annual Report of the Bank of Spainthat the trend of home ownership in Spain has fallen a lot in recent years, especially among young people, and this has caused “an increase in inequality.”

Regarding this, Paco Morotespokesperson for the Platform for People Affected by the Mortgage (PAH), assures that “ICO credits are not a solution”. What’s more, from the organization they believe that it will aggravate the situation “Because it forces you to borrow more and they are policies that consist of transferring public money to private pockets but without generating any collective benefit.” The solution, according to Morote, goes through the investment of that money in the Spanish public housing stock.