Between 2004 and 2007, financial institutions fiercely competed with each other to grant mortgages to families. Therefore, almost any citizen who applied for one got it. The key to success was in the custom made suit for their clients. To balance the figures, they stretched the number of years of the loan, granted loans with increasing installments or for an amount equivalent to the price of the home.
After the housing bubble burst and the disappearance of numerous savings banks, the bank stopped being reckless. In other words, it went from being a financial tailor shop to a store ready to wear. His managers suppressed most of the earlier risky practices, and those that survived were of little statistical significance.
In the last group were the Mortgages for 100% of the amount of the flat. They continued to offer them, but in a much more selective way. The main beneficiaries were its most profitable customers, both old and new. To the former, another bank had offered them a loan of the above characteristics. The latter had high incomes, great solvency and were willing to be closely linked with the entity, as they agreed to contract various products from its portfolio.
On Sunday, May 7, the previous loans were once again the protagonists, since Pedro Sánchez rescued them of his ostracism. At a rally in Santa Cruz de Tenerife, he announced his massive return. As of that month, the ICO would guarantee 20% of the price of the home purchased by certain groups and would encourage banks to grant mortgages for 100% of its amount, instead of the standard percentage of 80%.
Los beneficiaries for the previous guarantee will be the young people up to 35 years old and the families with children under 18regardless of the age of their parents. However, both have to use the purchased home as habitual residence y not have previously purchased any other. If the buyer is a person, they can only benefit from the previous measure if their annual income does not exceed 37,800 euros. On the other hand, if the purchasers are a couple, the previous limit amounts to 75,600 euros.
The proposal is not new, since a very similar one has been applied by the Popular Party in Murcia, Madrid, Castilla y León, Galicia and Andalusia. However, the original comes from the UK. Specifically, it constitutes one of the star measures of the program Help to Buyinitiated on April 1, 2013 by the Conservative Government of Cameron and repealed its last part on March 31 of the current year.
In this program, the Administration provided homebuyers with a guarantee, a participating loan or a small grant. In the two initial cases, the purchasers only paid 5% of the amount of the apartment and the expenses and taxes derived from the purchase.
In the United Kingdom, the previous performances had a mixed response. In the small towns, its impact was positive, as it helped numerous families to move from rented housing to owned housing and increased the number of properties built. Despite the increase in supply, prices went up. However, in most of them they did so moderately.
Instead, in the most populous metropolisits consequences were negative, since the program contributed decisively to generate a inflationary spiral. In addition, a substantial part of the beneficiaries were not families with limited economic resources, but upper-middle class who exchanged a good home for a better one. Therefore, in these cities, where it was more difficult to access a property, Help to Buy did not solve the existing problems, but made them worse.
The results obtained were not surprising, but rather predictable. The program’s propaganda focused on families with fewer economic resources, especially those made up of young couples. However, the different conservative governments were perfectly aware that the great stimulus granted to property applicants would favor developers and ownerssince both would obtain a higher price for the sale of their properties.
The last two repercussions seemed fine to them, since the first entailed increased employment and economic activity and the second an increase in the wealth of many of their voters. For this reason, they allocated large resources to the program, allowed buyers of high-priced apartments to take advantage of it and also offered aid to purchasers of a home improvement, in addition to those who bought their first property.
An example makes it possible to clearly visualize the generosity of the Administration. In London, in 2022 a family could receive aid in the form of a participatory loan for the purchase of a home if its price did not exceed 600,000 pounds. Said credit amounted to a maximum of 40% of the price of the house, had a zero interest rate during the first five years and a very low interest rate in the following years, even if the Bank of England raised rates significantly.
Therefore, in the last decade, the great rise in the price of housing in the capital has been supported by the high salaries obtained by a part of its citizens, the attraction of foreigners with great purchasing power and, to a substantial extent, the Help to Buy program. To buy in it, the British had two ways of financing: a mortgage and the participatory loan granted by the Government. The first is usually granted for 75% of the sale amount and the second could amount to 40% of the price.
In our country, although the measures proposed by PSOE and PP constitute a copy of a part of the Help to Buy program, their impact on the residential market will be very different. In the United Kingdom, its effects were of great importance; On the other hand, in Spain they will have a residual character. It is not a design error, but rather its true intent.
The key is in the low budget allocation of the plans presented by some politicians. The best example is provided by the Community of Madrid. The amount allocated to the program My First Home equivalent to small change (18 million euros). For this reason, in March 2023, the number of guarantees granted was only 307.
The proposal of the Government of the nation can first benefit many households. In the first place, because there are 9,250,779 residents in our country between the ages of 18 and 35. Secondly, because in the last three decades the low wages They have prevented many families with minor children from having 31% of the price of the house that the bank does not finance in the regions with a higher property transfer tax.
Third, because the income threshold (37,800 euros) to access the guarantee is substantially higher than the average and median annual salary, respectively. In 2020, the first stood at 25,165.51 euros and the second at 20,920.12 euros. However, as recognized Raquel Sánchez, Minister of Transport, Mobility and the Urban Agenda, said plan will only help 50,000 families to buy a flat in the next two and a half years. An insignificant amount in relation to the potential number of beneficiaries.
Despite what was stated a few lines above, I am in favor of mortgages for 100% of the price. Never in a general way, when there is a real estate boom or to benefit those who already own a home. The plan must help low- and medium-income families to acquire a first floor, only be in force in periods of price stability or real estate recession, and have a fixed interest rate mortgage for at least its first 10 years.
From the experience of the United Kingdom, Spanish politicians would have to learn that the endorsement of the Administration should not allow the acquisition of a good home in a magnificent district of Barcelona and Madrid. If this is your claim, the result will be disastrous. Its objectives should be the following: buying a flat on almost any street in a small townin most of the neighborhoods of medium-sized cities and in the periphery of the big. Therefore, the amount of the house purchased must not exceed 200,000 euros.
There is no doubt that such a policy should be accompanied by incentives for housing construction. If this is not done, a large price rise will be an undesirable consequence. However, this will be less dangerous in small cities than in large ones, since in the former the amount of sales continues to be substantially lower than in 2007, while in the latter it is already higher.
Finally, the program must last a minimum of 10 years, even if discontinuously, and benefit at least 200,000 families each year. If it does so, it will constitute a real aid to the acquisition of a first floor and will gradually drain the great bag of potential demand for housing currently made up of those under 40 years of age.
In short, to improve access to home ownership by those who do not own one, a program to grant mortgages for 95% or 100% of the sale price can be right, wrong or just smoke. In the UK, it was the former in small towns and the latter in large ones. In Spain, until now, it is simply the third.
Hopefully I was wrong and the announcement by the President of the Government is the beginning of a long-range plan to convert many tenants into owners. It is exactly what the vast majority of them want.
2023-05-23 21:27:52
#return #mortgages
