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Spaniards spend more than 30% of their income in housing

When buying a house, the most common rule for housing payments states that no more than 30% of gross income should be spent on housing payments, considering all elements of the mortgage loan, such as principal, interest, taxes and insurance. This indicator is known as the annual theoretical effort and depends mainly on the salary. If you and your spouse earn 10,000 euros gross per month, for example, your total housing payment should not be more than 2,800 euros. If your gross income is half of that amount, that is, 5,000 euros per month, your monthly housing payment should not exceed 1,400 euros. 

However, Spanish families find themselves in a situation in which they dedicate an amount well above the recommended threshold to their housing. According to a report by the Bank of Spain, at the end of the second quarter of 2023, the annual theoretical effort of Spaniards was 38.9% of their income, the highest figure since the end of 2011. 

The recommended limit of 30% was moved away from the third quarter of 2022, when the European Central Bank (ECB) began to raise interest rates considerably to try to curb inflation, which in Europe stands at 4.3%, well above the 2% target. As a result, while in the second quarter of 2022 the average rate of new mortgage loans was 1.7%, in July 2023 it stood at 3.9%, which shows the influence that financing has on the behavior of the real estate market.

This scenario poses a serious problem for accessing housing, especially for the most vulnerable groups, such as young people or low-wage workers. In addition, it poses a risk to the financial stability of families, since they could find it difficult to meet their obligations if their income decreases or if interest rates rise again. 

According to José García Montalvo, professor of Applied Economics at the Pompeu Fabra University of Barcelona, in statements for Five Days, the problem is that this indicator of theoretical effort is expected to continue increasing in the short term, since it reflects very well the consequences of conjunctural changes. Taking into account that the increase in interest rates takes a few months to take effect, it is expected that in the coming months it may exceed 40%. 

Despite the data, experts believe that the situation is far from being as serious as in the economic crisis of 2008, when the effort exceeded 50% and many people had debts and lower wages. Today, we are faced with a different scenario: wages are maintained and borrowing has been more "prudent". Therefore, by slowing the increase in the cost of loans once the European Central Bank finishes its increase in interest rates, a recovery of the market is anticipated due to the high demand for housing.