Who Spain's first-time homebuyers are might come as a surprise. Here's why

NEARLY half the people in Spain who rent their homes would rather be owner-occupiers, although fewer than one in five young adults leaving the family nest for the first time will be moving straight into a property they have bought, according to recent research.

In a country where the home-owning tradition has long been overwhelmingly the dominant choice – at any one time, around eight in 10 adults not living with their parents are in houses or flats they own, with or without a mortgage – renting has increased in recent times among the young, especially where they want to guarantee they will be able to relocate easily for jobs.

According to the Spain Youth Council (CJE) in its Independent Living Observatory study, a total of 59.2% of first-time home-leavers move into rented accommodation, and just 17.4% buy their first dwelling.

How old are Spanish adults when they buy their first home?

Despite residential property continuing to be very affordable in most of Spain, even in highly-popular areas such as cosmopolitan coasts and large cities, becoming a first-time buyer remains difficult: Mortgage providers typically only lend up to 80% of the purchase price or market value, whichever is the lower, and buyers have to budget for a further 12.5% approximately to cover fees and taxes.

Fees are normally less than the 12.5% when buying outright, without a mortgage.

For a second or subsequent property, mortgages are usually capped at 60% loan-to-value.

Colliers Consultants, in their recent research report on first-time buyers across the continent – European Residential on the Rise – reveals the average age of a person in Spain purchasing a home for the first time is 41.

This is higher than the European average of 34, and also higher than approximately 20 years ago when Spaniards would typically be aged 33 the first time they exchanged contracts on a property – around the same, back then, as it was in the UK.

But although industry surveys indicate that 47% of tenants would rather be owners, some of the reason for Spain's older first-time buyers could be that they wanted to 'get settled' before committing to a home for life.

This is borne out by the most recent report from the Estate Agencies Association Federation (FAI), which says a typical property-buyer in Spain is aged between 40 and 50, with dependant children, and will be looking to purchase a home for the first time.

Other factors may come into play, such as families in Spain being generally more likely to own more than one property – summer houses on the nearest beach or urbanisation, or out in the country, are common - and for homes to be inherited or passed down through generations, meaning a newly-established couple or single parent with children might start off independent life in a second house or flat that already belongs to their older relatives. 

Staying close to the nest – at any age

Tying in with this is the limited mobility, or dispersing, of families in Spain: FAI figures show that 42% of buyers, first-time or otherwise, want a new home in the same neighbourhood they grew up in or have lived in for most of their lives.

And of the 30% prepared to look beyond their immediate stamping ground, whilst they are willing to consider other neighbourhoods, do not want to move to another town altogether.

In summary, 72% of buyers, whether seeking their first home or looking to move into new premises, want to stay in the same village, town or city.

The reality, though, is that around one in 10 of these property-seekers will end up living in a different town. 

Among homebuyers across the board, 72% want to stay in their existing area, and 65% do so, but 7% of those who had planned to stay close by finish up buying a home in another municipality.

It is not clear whether those who eventually decide to switch towns move to the closest one to their own, however, or further afield.

Another theory is that, although living close to or within their childhood or young adulthood streets or near their family of origin is important to the vast majority, other criteria turn out to be of even greater priority when forced to choose between them – price, ease of commuting, quality of schools nearby, or public services and facilities being better in the area they finally decide upon.

What buyers want: The hierarchy of needs

Price is nearly always the number one consideration for buyers, according to the FAI, especially those who need a mortgage and particularly those at the high loan-to-value end of the borrowing spectrum.

Financial experts recommend a maximum of 30% of one's monthly income be spent on mortgage repayments or rent, which narrows the field for those on salaries close to the minimum wage, or one-adult households.

Second priority is almost always based upon the features of the new home itself rather than its location or environment, the research says.

Number of bedrooms, size of house or flat, and layout, general comfort and visual design are, after price, the factors most likely to attract or dissuade a potential buyer.

FAI data say these elements tend to surpass other, 'added-value' features in an ideal home – like swimming pools, the nature of communal areas in an apartment block or on an urbanisation, or the type and level of services and facilities nearby, such as schools and leisure or entertainment.

Older first-time buyers, but who seek a forever home 

The two main reasons for Spaniards or existing residents in Spain buying, according to industry research, are to acquire a home to live in full-time or most of the time, or as an investment.

Buying a second home for the owner's personal use is less common when the purchaser is already living in Spain, as opposed to those based mostly abroad.

Hunting for a main residence is the top criterion, and a typical homebuyer – given their average age, in their 40s, and having at least one child already – will be looking for a large and spacious premises.

'Large' and 'spacious' do not always go hand in hand, meaning a smaller size of property with better distribution of space is more likely to be popular.

The more bedrooms available, the better, for this average purchaser profile, to accommodate the child or children they already have or plan to have in the future.

FAI data say buyers, including those who have never owned a home before, mainly think of their eventual purchase as a 'life project' – which is perhaps why they tend to be older when they buy for the first time, as their intention is to stay there forever rather than start off small and cheap and gradually climb the property ladder.

Acquiring property as an investment typically takes one of two routes, the figures show. 

One involves that of buying a first home, to live in, but with a view to this being merely temporary, intending to later sell it to buy something larger and more permanent, or to keep the original first-time property to rent out as a source of income after saving up to purchase a larger one in addition, to live in full-time.

Effectively, this is a 'property-ladder' type of investment, which is less common than going straight in and acquiring one's forever home with a first-time mortgage, but more common than buy-to-let investment projects or than people who purchase homes to renovate and then sell on at a higher price.

'Lockdown savings' and negative Euribor boosts home-buying market

Figures published in the final quarter of 2021 by the Valuations Institute showed that low mortgage interest rates – with the Euribor, or Eurozone rate, in negatives since February 2016 and likely to remain well below zero for some time yet – and increased household savings as a result of the 2020 lockdown and two years' worth of 'pandemic restrictions' reducing non-essential spending, have helped spur on the property market.

In fact, as at the end of 2020, family savings reached an average of 14.8% of disposable income, the highest in two decades, the National Statistics Institute (INE) revealed at the time.

Swelling available funds mean buyers on the move – selling their existing home to acquire another, rather than first-timers, second-home seekers, or investors – accounted for around 43% of the total of estate agency business in 2021, compared with 39% in 2020.

This also led to interest in new builds, larger homes and out-of-town property rising.

The vast majority of buyers still need a mortgage, though, according to the Valuations Institute.

Asked whether now is a good time to buy, the Valuations Institute based its affirmative response on higher household savings and lower interest rates rather than property prices or value for money in general – househunters' personal situations instead of market trends.

Home prices have been steadily climbing in the years since Spain came out of recession, but from a buyers' perspective, these have been 'manageable' rises, not a 'boom' or series of booms, and not so rapidly or steeply as to render it imperative to make a swift purchase before the next upwards leap.

And even though home prices have, indeed, gone up – albeit gradually - in recent years, falling interest rates mean the actual monthly expenditure for homeowners with a mortgage has remained the same or even reduced.

Growing fixed-rate mortgage trend, despite interest rate stability

INE data show fixed-rate mortgages began to overtake variable-rate loans in 2021, reaching 60% by the final quarter.

This is in spite of the fact that, in Spain, variable-rate mortgages are reviewed annually, so they do not change from month to month with the associated risk of a sudden spike not budgeted for, meaning homeowners have plenty of time to plan and reconsider if they see signs of possible rate rises over several months.

Effectively, borrowers will have a permanent one-year fixed rate by default, even if they opt for the 'variable' route.

The new fixed-rate fever also seems at odds with the fact that the Euribor has tended to go down, rather than up, in the past six years, meaning mortgages usually get cheaper – not more expensive – with each annual review, and only partly through the capital owed decreasing.

Where one-off rate rises have been seen since the first-ever fall into minus figures, these are typically measured in hundreds of a percentage point, so the impact on average monthly mortgage payments is generally a matter of a few cents.

Rates which are fixed tend to be higher than those which are reviewed annually, and an additional fee is payable at the start to 'hold' the rate at inception, so repayments usually work out more expensive than for variable-rate mortgages.

Sharp and ongoing rises in the Eurozone interest rate are historically rare, meaning the 'variable' route only really became economically inviable when the Euribor was at record highs at the peak of the property boom in 2007, reaching well above 5% for months at a time.