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Mortgages are not only stifling those who decide to buy a house in the most populous cities where markets are tense, such as Madrid, Barcelona or Malaga. In many municipalities across the country, efforts to comply with the bank exceed the threshold of “reasonable.” Actually quite a few. To be more precise, families in a third of Spain’s provincial capitals spend more money than they should on their homes, according to Tinsa’s latest analysis.

What’s more, there are half a dozen cities spread across the country, where buying a home takes more than half of disposable income on average.

How much does it cost to buy a house? This is the question Tinsa technicians ask themselves, taking the word “cost” in its broadest sense. When making the calculations, they took into account both the price of the house in euros per square meter (€/m2) and its “qualitative” value; That is, how much of a burden buying an apartment imposes on the household economy.

How did they do this? They calculated “theoretical annual effort,” which is the percentage of income that households devote to paying the first annual installment of their mortgage. Of course, not every buyer is the same, they want to buy the same type of house, have the same savings and demand the same amount from the bank.

To make his calculations manageable and arrive at representative data, Tinsa did the math based on a very specific situation: a standard household signing a mortgage for 80% of the price of an apartment. In their words, this ratio “simulates the percentage of disposable income that the average household would need to allocate to pay the first installment of a mortgage that covers 80% of the value of the average home at current prices.” There are times when all costs associated with the acquisition of property are included in the calculation of this indicator.

So what did they find? There are many cities where buyers spend more than recommended on their homes. Moreover, this problem is not limited to cities such as Madrid and Barcelona. Technicians discovered nine provinces where the “theoretical annual effort” on average exceeded 35%; That means the first mortgage payment accounts for more than a third of a household’s disposable income.

It is not strange that this percentage was chosen and no other percentage. It responds to advice from regulators, including the Bank of Spain, to spend no more than 30% or 35% of income on mortgage payments.

Which provinces are these? This theoretical “red line” was crossed in the Balearic Islands, Malaga, Cádiz, Madrid, Alicante, Barcelona, ​​Seville, Pontevedra and Salamanca, according to the analysis, which explains that the greatest tensions continue to be recorded on the state map. In the archipelago, where the population faces a rapidly increasing effort rate, this shows that mortgages absorb a very high share of income. There the rate is 64.4 percent. Malaga ranks second with 56.8%.

Can you go into details? Yes, that’s when surprises emerge. Although the study concludes that Spaniards spend an average of 34.9% of their disposable income on their first annual mortgage payment, it also shows that there are many cities where the 35% threshold is well exceeded.

The “reasonable” effort limit is estimated to have been exceeded in 17 of Spain’s 52 provincial capitals. Of course, not everyone is in the same situation. The worst-off neighbors are people living (and buying homes) in Barcelona, ​​Palma, Cádiz, San Sebastián, Málaga and Madrid. The report identifies “highest tension” here. In practice, this means that the population faces theoretical efforts to access housing that exceeds 50% of their disposable income.

Salamanca, Seville, A Coruña, Pamplona, ​​Granada, Valencia, Santander and Bilbao will be in a second effort step, with 40 to 50% of available income allocated to cover the cost of the first installment of a mortgage. These are followed by Segovia, Alicante and Bilbao with rates between 35 and 40%.

Only big cities? The research is interesting because it shows that the problem is not specific to Spain’s major metropolises; This does not mean that mortgages have an overwhelming weight in the domestic economy in these cities.

“Theoretical effort” reached 58.5% in Barcelona, ​​54.6% in Malaga, 51.6% in Madrid, 45% in Seville and 41.7% in Valencia. reached. Zaragoza is off the list, falling short of the recommended standard despite being one of the country’s most populous cities. The percentage is 32%. The study does not analyze the situation in other non-capital cities such as Vigo or Gijón.

What is the study for? To get an idea of ​​how acceptable it is for the average household to own a home in different Spanish cities. And most importantly, to what extent it will stifle your domestic economy.

An analysis is an analysis anyway and therefore has its strengths and weaknesses. The report calculates “theoretical effort” by referencing a mortgage covering 80% of the value of an average home; The authors of the report acknowledge that the average loan-to-value ratio is lower: in the second quarter it stood at 63%. At the beginning of the year, this rate was 61.5%.

Do you provide more data? Yes, it also reveals other interesting keys. For example, the report states that the average mortgage rate in Spain was 140,800 euros in the second quarter, and the average monthly installment payment during this period was around 700. The report’s data shows that the average value of the house was new in the last quarter. and used became 3.1 percent more expensive by 2023.

So what does this mean for families? Tinsa’s conclusions are in line with other studies that indicate home purchases account for more than a significant portion of families’ income. At the beginning of 2024, analysts were already warning that homebuyers should expect it to absorb around 40% of their income; this rate is similar to the rate recorded by the Bank of Spain in mid-2023.

The average indicator at the national level for Tinsa is currently 34.9%, but its calculation for the previous quarter was 34.5%. The fact that Spain reached these percentages above the recommended 30 percent is explained by interest rates, the labor market, the increase in housing prices and the imbalance between supply and demand, especially in cities. They also illustrate the difficulties of taking on mortgages at a particularly complex time for the residential rental market due to a collapse in supply and rapidly rising prices.

Pictures | Tushar Agarwal (Unsplash) and Alex Vasey (Unsplash)

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