It’s official: the Council of Ministers has given the green light to the launch of a line of government guarantees valued at 2.5 billion euros aimed at making life a little easier for young people and families with low incomes when buying a house or accessing a mortgage. This is one of the first housing measures of 2024, but the truth is that it has arrived with a bittersweet taste, originating certain political and economic debate about whether this strategy could be more negative than positive.
As? Causing prices to become more inflated or the conditions of banks to grant credits to become even tougher.
Measure. Pedro Sánchez confirmed it last weekend during a rally in Vigo although It had already been announced nine months ago. Broadly speaking, the State will become a guarantor for young people (under 35 years of age) and families who have jobs and financial solvency but who have difficulties requesting a mortgage and having the bank grant it. The condition is that it is a habitual residence and the first apartment that is purchased and the income does not exceed 37,800 euros gross per year. In this way, the Official Credit Institute will guarantee up to 20% of the loan amount for 10 yearsunless the home has an energy rating of D or higher, which will be 25%.
It is a guarantee, not a subsidy. But be careful, here we must keep in mind that the measure does not mean that the Government is distributing money, but rather that what it offers are guarantees. A guarantee is not a subsidy, it is a payment commitment in favor of a third party, who will receive the benefit if the guarantee does not comply. That is, the Government guarantees 20% of a mortgage means that it undertakes to respond for the debtor for this amount in the event that the debtor does not pay. A guarantee to the bank that the Government would provide the money in case the mortgagee does not comply.
The objective is that in this way, many young people and families in this country who have not been able to achieve enough savings to be able to cover the expenses associated with a mortgage (and the down payment not covered by the loan), can do so.
It could inflate prices. The announcement, however, has fallen like a blow on the left, causing certain disagreements between parties and economist experts. Mainly because other countries like the United Kingdom have experimented with similar measures and that has contributed to increasing housing prices. In fact, The British country launched the “Help to Buy” program in 2013.which it eliminated last year, to allow vulnerable families to obtain mortgage loans of up to 95% of the value of the house guaranteed by the State.
The aid, although it made it possible for 340,000 families to have access to a home, also inflated market prices. This is what emerges from a report prepared by the House of Lords: “The government’s home buying help scheme has driven up house prices in England and failed to deliver value for money for taxpayers.” The analysis adds that with this scheme prices were inflated above the value of the aid, especially in stressed areas. In the end, more people with purchasing power means more demand. And more demand means higher prices.
The critics. Some groups like Sumar have been quick to criticize the measure given the possibility that it could have an inflationary effect and end up benefiting the banks. Also, because “it could lead to real estate developers absorbing all the aid.” The second vice president of the Government and Minister of Labor and Social Economy, Yolanda Díaz, has warned that these guarantees “are going to have a probable impact of continuing to raise the Price of housing.” The leader of Más País, Íñigo Errejón, has spoken along the same lines.which warns that “for the State to function as a guarantor for the purchase of housing for those who can already afford it is a transfer of public money into private hands.”
And tighten the conditions. In fact, it is a scenario that could occur. It must be taken into account that the user profile to which this guarantee is directed is precisely the one that the bank considers to have a greater risk of insolvency. So the entity could restrict the debt ratio to the maximum and offer a more expensive interest rate. That is to say, conditions would be tightened and there would in turn be many fewer people who meet the bank’s requirements for granting housing credit.
“In the end, although the Government guarantees 20%, it is the bank that assumes the risk,” explained David Espiago, business director of the mortgage intermediation company Housfy Hipotecas, who points out in this article from The Vanguard that the measure is nothing more than “Pure propaganda”: “the only ones that have joined this campaign are banks that already offered these mortgages before.”
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