Spain's Government Gives Green Light To 2.5 Billion Euro Loan Facility For New Homeowners

In a significant move to address the challenges faced by aspiring homeowners, Spain has approved a new line of guarantees from the Official Credit Institute (ICO) amounting to 2,500 million euros. The primary objective of this initiative is to provide financial assistance to young individuals under the age of 35 and families with dependent children, regardless of age, who have an individual income of up to 37,800 euros per year. These funds are specifically intended to help them overcome the hurdle of paying the down payment on their first home.

The new measure, however, has not been universally welcomed by members of the cabinet. Minister of Social Welfare, Ione Belarra, who is a member of Podemos, the smaller party in Spain's coalition government, claimed that it "encouraged the mortgage spiral." Belarra's criticism reflects concerns about the potential consequences of increased mortgage lending.

On the other hand, Transport Minister Raquel Sánchez, a Socialist, rejected the criticism and emphasised that the mortgage guarantee is just one of many initiatives aimed at improving access to housing. Sánchez believes that the guarantee line could benefit up to 50,000 families, emphasising that "What the government wants to do is to mobilise all the resources it has at its disposal to establish the foundations of a new housing model.

“The reality is that there are families and young people who want to purchase a home," and ICO guarantees "make it possible," she said.

Sánchez made these statements after meeting with housing sector representatives and unions, highlighting the government's commitment to addressing the housing challenges faced by families and young people who aspire to purchase a home. According to Sánchez, ICO guarantees play a vital role in making homeownership a reality for many.

In the current housing market, there has been a significant decline in the number of mortgage loans to buy homes. Data from the Observatorio del Collegi Notarial de Catalunya (Catalan Notaries Observatory) reveals that in March, the number of mortgage loans fell by 29.4 percent compared to the same month last year, totaling 4,520. This decline represents the most pronounced year-on-year drop in the past twelve months, confirming the downward trend in mortgage activity. Notaries attribute this decline to increases in interest rates, which have made borrowing less favourable for potential homebuyers.

In Catalonia alone, the decline in the number of mortgages exceeded the Spanish average by three points, standing at 26.4 percent year-on-year. Additionally, the average mortgage instalment in Catalonia during March was 1,580 euros, higher than the national average.

While Spain's new guarantee line aims to alleviate some of the challenges in the housing market, the declining number of mortgages and the rise in interest rates underscore the broader issues impacting affordability and access to homeownership. The government's measures, including the ICO guarantees, are steps toward establishing a new housing model, but further efforts will be necessary to create a sustainable and inclusive housing market in Spain.

Sources

https://www.capitalmadrid.com/2023/7/2/65350/spain-approves-25-billion-loan-facility-for-first-time-house-buyers.html
https://www.catalannews.com/politics/item/spanish-government-to-act-as-guarantor-for-20-of-mortgages-of-those-aged-35-or-under