The financial effort Spanish families have to make to afford buying a home has fallen back to pre-boom levels, meaning housing in Spain is now as affordable as it was in normal times, assuming interest rates stay this low.
The average family in Spain would have to dedicate 32.5% of household income on mortgage repayments were they to buy today, according to figures from the Bank of Spain for Q1 of this year.
The level of income spent on mortgage repayments hasn’t been that low since September 2000, and a long way from maximum of 60% reached in September 2008, when rising house prices and interest rates made buying a home unaffordable for most Spaniards (48% once mortgage relief was taken into consideration).
The Bank of Spain calculates the affordability ratio using typical mortgage repayments and the average property price compared to average household income, assuming a mortgage loan to value of 80%. House prices have fallen 37% since the Spanish real estate bubble burst, according to the Bank of Spain.
LOW INTEREST RATES FLATTER THE AFFORDABILITY PICTURE
Take out the effect of lower interest rates, and the affordability picture doesn’t look so good. Interest rates are at record lows, which makes housing more affordable today, but only as long as interest rates remain low.
If you compare the average house price to the average gross household income – another way at looking at housing affordability – the average property price has fallen from 7.7 years average income in 2007 to 6.3 years today. That is not a big fall, in part because incomes have also fallen in the same period. Experts consider the ideal ratio to be between 3 and 4 years, which makes Spanish housing still look expensive in comparison to household incomes.
YOUNG BUYERS HAVE TO PAY 12 YEARS INCOME
Young adults hoping to buy a home and fly the nest are looking at a mountain to climb, given the pitifully low salaries they earn, and house prices that still look high in comparison.
Spaniards under thirty would have to spend 12.3 years of gross annual salary to afford buying a home, claims the Emancipation Observatory of the Youth Council Of Spain (CJE). Looking at it another way, young Spaniards would have to spend 58% of their gross salary on mortgage repayments if they are lucky enough to have a job. Unemployment amongst young adults stands at 38.5%.
So it’s no surprise that 80% of Spaniards under thirty are still living with their parents.