Housing affordability improves thanks to mortgage tax relief

At the end of Q1 2012, the cost of paying off a mortgage took up 29pc of average annual household income, according to figures from the Bank of Spain.

That is just a fraction less than the end of last year, despite falling house prices, suggesting that mortgage costs are going up even though house prices and base rates are falling. That can only mean that lenders are increasing their spreads.

Experts recommend that households spend no more than a third of income on mortgage repayments, so the latest figures could be taken to suggest that house prices have now fallen back to sustainable levels in relation to income, or even below.

However, strip out the effects of mortgage tax relief – recently re-introduced by the Government – and housing affordability doesn’t look so good, with Spanish households spend 36pc of income on mortgage payments.

Another way of looking at housing affordability is to divide the average house price over the average household income, giving you house prices in years of average income, or how many years income you need to buy a home.

By this measure, Spanish house prices now equal 6.1 years of income, which is way above the long-term average of around 4 years, before you start taking into account factors like Spain’s 25pc unemployment, which means that a significant proportion of Spanish households have no income whatsoever.

Whichever way you look at it, average Spanish house prices have some way to fall, at least according to official figures.

But as regular readers are well aware, official figures for Spanish house prices are detached from reality, so you can never be sure what conclusions to draw from them.

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About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on ms@spanishpropertyinsight.com.