And what is better now to rent or buy?
Rising rates and house prices have increased the average mortgage payment by 43% in just seven months, but even so, it’s still a better deal than living as a renter.
April 15, 2024 . Updated at 1:53 p.m.
The housing market was a real powder keg. Since rents have been trending upward for a long time, many citizens before the pandemic decided to make an effort and try to find real estate in order to become its owner. But the inflation crisis caused by the emergence of the coronavirus has forced the heads of the European Central Bank (ECB) to change the course of its monetary policy and, after years when rates were near zero, begin to rise. value of money. The decisions made recently by the team chaired by Christine Lagarde have caused an earthquake in the household economy, especially among those with variable rate mortgages, as they have had to tighten their belts (a lot) in a matter of months. be able to pay fees that were even doubled.
And so, many of those who have not yet taken a step have a question: is it better to buy or rent an apartment now? Mortgage consultant iAhorro decided to try to dispel doubts in his latest Financial Stress Barometerdetermined that at the moment it is still – on average – Paying a mortgage is 12% more profitable than renting.
To get an idea, experts provided some numbers. Facing the average rent in our country means (as of January 2024) paying an average of 1,113 euros, while in mid-2023 (specifically in June) this fee was 1,145 euros. This means that rents have decreased slightly in recent months, by 2.78%.
This did not happen with mortgages, which were affected by rising interest rates. The average installment for this type of loan has therefore increased by a significant 42.72%, rising from €696.27 on average in June 2023 to the €993.72 it had already reached at the beginning of this year. Despite the escalation, it is clear that The average mortgage is still slightly below the average rent: “Despite rising interest rates and house prices, rental pressure is still stronger for Spanish families than mortgage pressure, especially in large cities where the demand for rental housing is also higher, such as Madrid, Barcelona or the Balearic Islands in general.
La Coruña remains without “For Rent” signs: “The situation is so serious that we are seeing more and more families living in the same apartment”
Increase your efforts
As mortgages rise, so does the effort families must put into being able to afford something as basic as housing. According to the latest living conditions survey, published in February, the average household income in Spain increased by 8.09% over the year, from €32,216 per year earned in 2022 to €34,821 last year. But inflation and general rise in life It is emptying the pockets of the Spanish people at a truly dizzying pace. Spaniards invest 38.38% of their salary in paying rent. And here comes the good news, because since June 2023 this percentage has decreased by 4.29 points. That is, paying rent is now a little easier than it was a year ago. The other side of the coin is for mortgage holders, who now put in 8.31 points more effort than they did then: they allocate 34.25% of their income to repay the loan to the bank. Despite this, as you can see, the rental percentage is higher than the loan percentage. Although there’s another important thing to consider in this case: to apply for a mortgage, you’ll typically need to put 20% of the home’s price down in savings (in addition to another 10% towards expenses), so the initial effort is really important.
In any case, this means transferring the situation of Spain as a whole into a photograph. But the reality is that depending on the territory where is the citizen located? financial efforts vary greatly. For example, regarding mortgages, the highest premiums continue to be found in the Balearic Islands (average €1,413.53) or Madrid (€1,391.76). Both are the only autonomous communities in which the average monthly fee exceeds a thousand euros. On the other hand, Murcia and La Rioja have the lowest fees: 437 and 491 euros respectively. “Two important reasons are related to the growth of mortgage loans. First, interest rates, which continue to rise. But on the other hand, we are also seeing a general increase in property prices, which is why average mortgage payments are also rising,” explains Simone Colombelli.
If we look at rents, their value will develop more unevenly than the cost of mortgages: “It is true that in some areas of Spain it continues to rise, especially in Balearic Islands, Madrid or Catalonia, but in other, more depopulated areas, it decreases more noticeably,” says the iAhorro expert. Thus, the highest average rental cost is observed in Madrid (average 1,529 euros), followed by Catalonia (1,459 euros). At the opposite pole are Extremadura (average 504 euros) and Castile-La Mancha (510 euros). “Where there is more supply of houses for sale and at lower prices, rentals must offer cheaper prices to be competitive,” he concludes.
And what happens in Galicia? In this area, rents are still higher than mortgage payments. Thus, a tenant who wants to live while paying rent must pay an average of 702 euros per month, much greater efforts in some major cities located on the coast (eg Vigo or A Coruña). On the other hand, a mortgage requires on average about 624 euros, which is a difference of almost eighty euros.