Renting a house or buying with a mortgage? Cities in Spain where a loan is cheaper than a rental

Renting a house or buying with a mortgage? Cities in Spain where a loan is cheaper than a rental

Buy or rent? This is always a big question when looking for housing and is especially acute at the moment when prices are rising, mortgage interest rates are rising and rental rates are tending to go up.

Buying a home implies having money for a down payment. In addition, it is necessary to understand the amount of savings and income in order to decide whether it is necessary to take out a mortgage or not.

If a mortgage is necessary, and this is the majority of cases, it is necessary to have income for permanent mortgage payments, for the first installment, if necessary, as well as some amount of savings to cover the non-mortgage share in the purchase price of housing (extremely rare situations when a mortgage loan covers more than 80% of the value of the property).

At the same time, the form of taking out a mortgage plays an important role, whether it has a fixed or floating rate. Depending on the current state of the market and its development forecasts, which of the proposed options is more reasonable to take.

On the other hand, there is rental housing. The option in relative comparison with a mortgage is much less risky, but your rented house will always be someone else's real estate, and the money spent on it will not be returned for investment in something more durable and, in fact, belonging to you.

The judgment about «my own» residential property was one of the main arguments for most Spaniards to save for the purchase of their own real estate or applying for a mortgage. The latter has been particularly attractive in recent years, when interest rates on lending have been at historic lows. In recent years, however, the trend has been changing.

In conditions of low wages, rising prices and difficulties in obtaining a mortgage loan, renting a home is not just the best, but the only possible option for millions of Spaniards. But today, the mass migration of buyers into the rental sector has led to an exponential increase in rents. Now consumers are faced with a serious question, in a situation of rising rates, prices and rents — how to purchase housing?

The constant increase in interest rates carried out by the European Central Bank (ECB) in order to curb the growth of inflation has had a direct impact on the real estate market. First of all, the problem is in the Euribor index and its growth, which leads to an increase in interest on variable-rate mortgages.

Fixed-rate loans are loans for which, during the entire term of the loan obligations, funds are collected from a person in the same amount. In the current month or in 10 years, the amount of payments on the loan will be identical.

A variable-rate mortgage is a riskier instrument. They are characterized by the fact that the interest rate consists of a fixed differential added to the base rate, which is usually Euribor. The amount of contributions paid increases or decreases depending on the fluctuations of this basic index.

A variable rate can be beneficial if the market development is properly taken into account. If a fixed rate obliges a person to make payments in the same amount regardless of the state of the market, then the variable adapts to periods of growth and decline.

This type of mortgage has been one of the most popular for many years, but in the current situation, the amount of contributions paid is increasing at an unprecedented pace due to the already mentioned Euribor, and more globally due to inflation in the global economy.

The company UVE Valoraciones, specializing in the analysis and evaluation of real estate markets, recently released a report on the housing market in Spain. Part of the data presented was devoted to the cities of the country where there is a pronounced benefit to apply to mortgage loans, rather than renting housing.

According to the report, out of 110 cities analyzed, only 12 of it can be said with confidence that it will be cheaper for buyers to take out a mortgage and pay it off than to rent a house. The list is as follows:

  • Santa Coloma de Gramenet;
  • Molina de Segura;
  • Leganes;
  • Reus;
  • Manresa;
  • Tarragona;
  • Badajoz;
  • Paterna;
  • Alicante;
  • San Cristobal de la Laguna;
  • Barcelona;
  • Parla.
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