Experts advise that it is a good time to buy a house due to the market situation and low interest rates, although it is essential to stick to a realistic budget and have savings for the down payment and the expenses involved in this transaction.
Taken from Vanguardia
Buying a home is a crucial decision that requires considering factors such as available savings and current real estate market prices. Many prospective homeowners are wondering: Is now a good time to buy? In the third quarter of this year, the value of both new and resale homes in Spain increased by 6.1% year-on-year, according to data from the appraisal company Tinsa. This upward trend is even more pronounced when compared to the same period in 2020, when prices fell due to the pandemic.
“Although housing prices have remained stable, they are gradually increasing, slowly and unevenly depending on location,” explains Mariola Soriano, Research Analyst at the Institute of Valuations. During 2021, housing prices in Spain grew by 2.9%, according to Tinsa. The positive news is that the average price (€1,444/m2) is at 2012 levels.
“Those with sufficient financial capacity and who meet the credit quality required by banks to apply for mortgages are taking advantage of the low interest rates and attractive financing conditions,” says Soriano. Today, both fixed-rate and variable-rate mortgages have very low interest rates. In fact, last July, mortgages had an average interest rate of 2.54%, according to the National Institute of Statistics (INE).
The characteristics of the most sought-after homes
New habits and needs that have emerged after the lockdown have influenced the type of housing sought. “There has been a noticeable increase in demand for modern homes with more spacious rooms, natural light, and outdoor areas,” highlights an analysis by the Valuation Institute. “In the last quarter of 2020, the purchase of single-family homes reached 22.5% of all transactions, an all-time high. This trend continued in the first quarter of 2021 at 21%,” the same organization points out.
However, family homes aren't the type of property that generates the most interest among buyers. "Prospective homeowners are mainly looking for a standard apartment of between 75 and 80 square meters of usable space, with three bedrooms, two bathrooms, and, in some cases, a parking space or balcony," summarizes Iñaki Unsain, president of the Spanish Association of Real Estate Personal Shoppers (AEPSI). According to this expert, a property with a terrace or a penthouse is more of an aspiration than a reality, since there isn't much availability on the market and, moreover, the prices for these types of properties are higher.
How much money should you have saved to buy a home ?
However, the buyer's budget and, above all, their savings will define the transaction. “Depending on how much money they have, the prospective homeowner can analyze what type of house they can buy. As a general rule, to purchase a home, you should have saved 35% of its total value,” Unsain advises. According to the president of AEPSI, considering the characteristics of a standard home, the buyer will need to have savings of between 50,000 and 100,000 euros.
“The first thing to consider is the budget available for the purchase and, consequently, the financing,” says Soriano. “Banks typically finance a maximum of 80% of the appraised value of the property. Therefore, buyers must have the remaining amount saved to cover the portion not covered by the mortgage, as well as taxes and other expenses related to the transaction, which can range from 10% to 15% of the property price, depending on the region,” states the analyst from the Valuation Institute.
The first thing to consider is the budget available for the purchase and, consequently, the financing. Banks typically finance a maximum of 80% of the appraised value of the entire property.
Always stick to your personal finances
“The important thing is to live in a house you can afford,” argues Natalia de Santiago, an expert in financial analysis and planning, in her book Invest in Yourself (Planeta, 2021). For her, the key is “not to spend more than a third of your net income on housing.” She also recommends that “the total price of the house should not exceed five times your gross annual salary, and that you finish paying off the house before retirement.”
De Santiago gives an example: “A hypothetical couple, both 35 years old, with gross salaries of €25,000 each, could buy a house for €250,000 (five times €50,000), provided they have savings of €75,000 for the down payment and closing costs, and take out a 30-year mortgage with a monthly payment that does not exceed 30% of their net income, approximately €1,000 per month. If these criteria are not met, the best course of action is to continue searching and renting until a home is found that fits their budget.”.
It is advisable to seek advice; an expert, such as your financial institution's manager, will make an objective and personalized assessment of what is most relevant to you based on your circumstances
In any case, planning ahead and being realistic will help future buyers acquire a home that fits their financial capacity and manage the ongoing expenses of homeownership. “Buying a property, especially for first-time buyers, is a very important step in a person's life. Rushing into decisions is also a mistake. It's advisable to take the necessary time to decide on the best option,” Soriano concludes.
Furthermore, it is advisable to seek advice; an expert such as your financial institution's manager will make an objective and personalized assessment of what interests you most based on your possibilities.
