Banks are aware of the difficulties young people face in meeting the demanding requirements of a mortgage loan and therefore launch products specially designed for this generation.
Taken from La Razón, Spain.
Children, grandchildren, nephews, friends, and cousins in their late twenties and early thirties are starting to announce to their families that they've become first-time homeowners. The millennial generation is growing up and beginning to make big decisions like adopting a pet, getting married, having children, and buying a house. Banks are aware of the difficulties young people face in meeting the demanding requirements of a mortgage and are therefore targeting them with products specifically designed for this generation. Up to 90% financing, low interest rates, and the possibility of repaying the loan over more than 30 years are some of the features that characterize these products, explains the banking comparison website Helpmycash.com.
90% financing
Due to their relatively short time in the workforce, many millennials haven't yet been able to save the 20% down payment that banks typically don't cover (plus closing costs). Therefore, in some cases, financing of over 80% can be offered, and they may even finance the closing costs (notary fees, administrative fees, registration fees, taxes). Occasionally, they can even provide 90% or 100% financing.
For customers with limited savings, the financial comparison site highlights the mortgages for young people offered by Banco Santander and Ibercaja. Banco Santander launched a mortgage in May for young people up to 35 years old, financing up to 95% of the purchase price, provided a third-party guarantor can be offered. The term is up to 30 years, and the interest rate can be either a fixed rate starting at 1.50% for 30 years or a variable rate starting at Euribor plus 1.39%. The variable rate can be obtained by contracting various services with the bank, such as direct deposit of income and bills, using a credit card, taking out insurance policies, investing in funds or pension plans, etc.
Meanwhile, at the end of September , Ibercaja began offering a mortgage for people up to 35 years old that can cover up to 95% of the purchase price (without a mandatory guarantor). This account has a maximum term of 30 years and a fixed interest rate starting at 1.15% for 25 years or a variable rate starting at Euribor plus 0.80%. This mortgage can be obtained in exchange for direct deposit of salary and bill payments, use of a credit card, taking out home and life insurance policies with the bank, and investing in a systematic savings plan.
Longer repayment period: up to 40 years
The repayment period can also be longer, potentially exceeding 30 years and reaching 40 years in some cases. This means that by repaying the loan over more years, the monthly payments will be lower, although this results in higher total interest payments in the long run. Helpmycash.com cites the example of Bakinter Young Person's Mortgage (launched in early October) , which extends the loan repayment period to 40 years. The interest rate offered to those under 35 starts at Euribor plus 0.90% (0.09 percentage points lower than that offered to older customers) if they open a Payroll, Non-Payroll, or Professional Account, take out home and life insurance policies, and invest in one of their pension plans. As for the loan amount, it can cover up to 80% of the property purchase price.
Lower interest rates
Younger customers can also enjoy lower interest rates. However, analysts at Helpmycash.com point out that this reduced rate can increase once the customer reaches a certain age, so they recommend carefully reading the fine print of the offer to avoid surprises later. Furthermore, these mortgages typically don't have an origination fee, and some lenders also don't charge penalties for early repayment or switching the mortgage.
An example of a cheaper loan until you reach a certain age is Kutxabank's Young Person's Mortgage. This mortgage offers a fixed interest rate starting at 1.45% for the first year, then Euribor plus 0.79% until the borrower turns 35, and Euribor plus 0.89% thereafter. In exchange, borrowers must have their salary paid into the Kutxabank account, take out home insurance with the bank, and open one of their pension plans. The repayment term is up to 30 years, and the loan amount can be up to 80% of the purchase price.
Compare: not all young people have the same profile
Although it's generally assumed that young borrowers will have limited savings and little financial stability due to their recent entry into the workforce, this isn't always the case. Many millennials in their late twenties and early thirties have built up savings that allow them to make a down payment on a home, resulting in a smaller loan from the outset and potentially even lower interest rates. Helpmycash.com explains that if the applicant does have savings and wants to minimize their payments, COINC's Variable Rate Mortgage may be more advantageous than those offered by banks that only cater to young people. This mortgage finances up to 80% of the purchase price, with a term of up to 30 years, and offers an interest rate starting at Euribor plus 0.89%, which can be obtained without needing to purchase any other products from the bank.
Banks are keen to attract young customers, as demonstrated by the recent surge in free online accounts. The aim of these fee-free products launched by traditional banks is to compete with the "zero-cost" offerings of neobanks and attract the most appealing new customers to their digital channels: young people with a salary and a mortgage, or those intending to apply for one. Therefore, another option for obtaining a more attractive offer is to negotiate with the banks you've contacted to improve the terms .
