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PROPERTY

What you need to know about Barcelona’s new rent caps

The Catalan government has passed a new law to try and tackle the problem of rising rents and greedy landlords, especially in Barcelona, by capping rental prices in neighbourhoods deemed to have a dearth of affordable housing.

What you need to know about Barcelona's new rent caps
Photo: Joselyn Erskine-Kellie/flickr

Which areas are affected?

The declaration of a zone as an “unstable housing market” can be made by Barcelona’s City Council or the Housing department of the Generalitat (Catalonia’s regional government) if the area meets the criteria outlined in the law.

The zone is only declared after completion of a detailed study carried out by the relevant housing authority.

Smaller municipalities may, on their own initiative, request to be declared an unstable housing market and introduce the capping if they present a report justifying the status.

READ MORE: 

What’s the criteria?

In order to be categorized as an “unstable rental market” and subject to the new law, it must be shown that rents in the zone have experienced a “sustained” increase at a cost clearly above the average.

It can also be applied if it shown that the increase in demand outstrips the availability of affordable housing or if the prices rises have significantly risen above the reference index pricing of the area.

In those zones, the rental price will be capped at 10 percent above the price per square meter of the reference index.

No zones have yet been created but will be established in the coming months. Much of central Barcelona is likely to be affected.

Data published on El Periodico showed that between 2014 and 2016 alone rent had soared in Barcelona's most desireable neighbourhoods, rising a whooping 25 percent in  Diagonal and Poblenou districts and 33 percent in Torre Baró.

What’s the reference index of rental prices?

Known is Spanish as the índice de referencia and in Catalan as L’índex de referencia, the reference index is calculated according to bond price data on Incasól. It’s basically an average price worked out per square meter according to the exact location and general condition of the property.

But it is not an exact science, so if one property is in outstanding condition in a down-at-heel neighbourhood, it won’t necessarily be reflected in the index price.

To work out the reference index in a particular area, the Catalan housing department has a tool which calculates price based on square meterage, location and condition.

Exceptions for a view, garden or swimming pool

The price can rise above the 10 percent cap if the property has an “exceptional feature” such as a particularly desirable view or if the property comes with communal gardens or a community pool.

New build or refurb?

New-builds or recently refurbished apartments also come with an exemption, this time of 20 percent above the reference index within the first five years of construction work.

In order for a property to qualify for special treatment the owner must make an “exceptionality application”.

Could this affect my current rental contract?

The new law will insist that any annual rise in rents on current contracts be based according to the Competitiveness Warranty Index – Índice de Garantía de Competitividad (IGC) in Spanish – a government index designed to combat inflation and promote the competitive gains of Spain in relation to the European Union.

Effectively, that means annual rental increases can only rise by the rate recorded in the IGC, which currently stands at -1.5 percent. Tha doesn’t mean that your rent will decrease it just means it will be frozen until such a time as the rate rises above 0 percent.  

When will the rent caps come into force?

It could still be months away.

The measure, which has been brought in by Catalonia’s regional government needs to be ratified by parliament within 30 days. Even then it could yet be appealed before the Constitutional Court.

Authorities will then begin studies to zone neighbourhoods where the rental market is unstable.

READ MORE: What you need to know about Spain's new rental laws

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PROPERTY

What the Euribor rise means for property buyers and owners in Spain

The rise in the Euribor interest rate, used to calculate mortgage payments in Spain, is causing big changes in the mortgage rates.

What the Euribor rise means for property buyers and owners in Spain

Looking to buy property in Spain? Already a homeowner here? Well, you may have heard something about rising interest rates recently.

Or perhaps changes to the terms of your mortgage. Or the Euribor – but what is it, and what’s going on?

What is Euribor?

In Spain, Euribor is the interest rate most often used to work out mortgage payments and to calculate both variable and fixed rates.

It is anchored to the interest rate set by the European Central Bank, and, as we are now seeing, quite responsive to global economic events.

It’s the interest rate that banks in the Euro Zone use to lend to each other, so when the base rate goes up, the Euribor does too, which sends mortgage interest rates across the Eurozone rising. 

Rising rates

Most Spanish mortgages with variable rates normally vary based on a variety of factors, but this number has been rising and in May 2022 saw figures of 0.240 percent (Tuesday May 17th), well above the average. 

The rises throughout May are leading many in Spain, and indeed across Europe, to wonder how high their mortgage rates can go, and when the rises will stop.

Banco de España has estimated that the increases could range from anything between €35 a month to an additional €400. Bankinter predicts the Euribor rate will finish the year at a staggering 0.40 percent, but, more encouragingly, Caixabank’s prediction puts it at just 0.13 percent by the end of 2022.

On Euribor.com.es, a website that tracks the index on a daily basis, they suggest that the market consensus predicts the Euribor will finish at around 0.3 percent at the end of the year, but could reach as high 0.8 percent in 2023.

All of them agree, and most other economic indicators suggest, that whatever the figure at the end of the year, it will remain positive, so it seems almost certain that mortgages will continue to rise throughout 2022 at the very least.

This instability, in addition to global inflation and supply chain problems, could mean that mortgage rates will be affected at least until 2023, with some predictors even signposting 2024 as the possible end of a rise in mortgage prices.

With things uncertain in the mortgage industry, and the world economy more broadly, perhaps you’re thinking of ways to try and insulate yourself from the climbing interest rates.

How to protect yourself from the rising rates

One way to weather the storm of interest rate increases is to change your mortgage from a variable to a fixed rate, either by negotiating with the your bank or by changing bank altogether – a process known as subrogation.

According to data from MyInvestor, during March and April the number of subrogations has started to rise.

Subrogation basically means switching the mortgage from one bank to another to change its interest rate. Although it does involve certain charges in order to do so – you pay the valuation of your house, which normally costs a few hundred euros, and a fee charged to the bank you are leaving, which can cost up to 2 percent of the outstanding amount – it could, and probably would, work out cheaper than paying the hiked interests rates over time.

You could also try and take out a new mortgage with another bank and use the borrowed money to settle the loan. This is, of course, a more expensive option as you have to pay the appraisal, the commission for early repayment of the current credit (again, up to 2 percent of the outstanding amount) and the expenses associated with its cancellation of registration, which normally runs to around €1,000.

READ ALSO: Spanish mortgages – Ten things foreigners should know before getting one

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