It is the old arithmetic that many citizens turn to when they are faced with the dilemma of choosing between going to live in a rented property or becoming the landlord.
How much rent will I pay a month? How much is my monthly mortgage payment?
Today, if we analyse the current rental prices in Spain and the second hand market, the balance is clearly tilted to the buy side. This idea is transmitted from the “Idealista” real estate portal, and according to calculations made by the “Confidencial” web newspaper, in the vast majority of Spanish provinces as well as in almost all districts of Madrid and Barcelona, today and at least in theory, it would be more affordable to pay a mortgage than a rent.
More affordable to pay a mortgage than a rent.
To perform the calculations was taken as a reference an 80 square meters house, a mortgage on 80% of the selling price, an amortization period of 25 years and an average interest rate of 2.5%.
In San Sebastián we have 928 Euros rent versus 1,103 Euros for a mortgage, In Ourense (328€ vs 394€) and Lugo (312€ vs 549€) is cheaper to rent than a mortgage, while in Barcelona or Palma de Mallorca the option of buying versus renting wins hands down.
In Barcelona an apartment of 80 square meters means a rent of 1,224 Euros per month and a mortgage for a similar housing, 974 Euros, i.e. there is a difference of 250 Euros on favour of a mortgage. In other cities such as Santander, Leon, Zaragoza, Zamora Caceres or the difference between the two options it is reduced to just a handful of Euros.
Calculator in hand to avoid future trouble
Hence the decision when opting for one option or another have to be considered and taken with calculator in hand to avoid future trouble.
If we look at different neighbourhoods, we note that in Madrid, for example, where more houses have been adjusted down from maximum prices in the districts of -Tetuán, Usera, Villaverde, Puente de Vallecas or Carabanchel-, the gap between the mortgage and the rent is much bulkier, however in districts like Chamartin, Moncloa, Retiro and Salamanca, where housing has been adjusted but in a lower intensity the difference between the two variables is not as striking.
Rent, not so accepted by the Spaniards.
To boost the rental market is a pending issue among the Spaniards. If we go back ten years ago, during the housing bubble, as housing prices rose and reached stratospheric levels, the accounts were much more favourable for those who chose to rent. However, given the maxim that housing prices never fall and the strong buying pressure so ingrained in our society, which was and still thinks that rent was throwing money away rent just did not win many supporters. Not surprisingly, “the money for all” slogan from the banks, mortgage at 100% and 110%, of purchase prices allowed almost anyone to buy a home around 2005-2007.
After the sharp collapse in housing prices, buying a home is now back to gain terrain against renting, at least on theory.
It was not until the outbreak of the crisis when the rent has received a major boost. According to the latest data from the European Statistics Office, Eurostat, at the end of 2013, 22.3% of the population lived in Spain in a rented home. A percentage that is slightly above the existing 19.4% in 2007, just before the outbreak of the economic crisis. An impulse produced basically because many citizens were excluded from the property market, either because of lack of funding or because of their delicate work situation.
After the sharp fall in housing prices
Now, following the sharp fall in housing prices and the renting market begins to clear signs of recovery, home buying is again gaining followers, at least on theory. To give us an idea, in Barcelona, the average price per square meter of housing rental closed on 2015 at 15.3 Euros, higher, than the 15.1 Euros in 2008 and significantly above the 12,5 Euros a year ago. This means that for a house of 80 square meters, last year a rent was paid of 1,000 Euros against the current 1,224 Euros. A negligible rise. Also in Madrid there has been a significant increase in rents in a year, from 11.3 to 12.4 Euros.
Obviously the lowering mortgages rates have a lot to do with the option of buying or renting. Obtaining a mortgage at 2% or 2.5% can clearly tip the balance on favour of buying.
With a market that is beginning to recover renting a property is going up but also purchasing prices, so more than ever you need to take the calculator in hand and carry out your essential arithmetic to help you to make the right decision.