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PROPERTY

Spanish property news roundup: New laws, taxes and rental benefits

Spain’s government has proposed a series of major changes to the country's housing laws, from price freezes to €250 rental allowances, big tax hikes on empty homes and more.  

Spain's Prime Minister Pedro Sanchez announced on Tuesday young mid-income workers will get a €250 monthly rental allowance if his government's new housing law is approved. Photo: JOHN THYS / AFP / POOL
Spain's Prime Minister Pedro Sanchez announced on Tuesday young mid-income workers will get a €250 monthly rental allowance if his government's new housing law is approved. Photo: JOHN THYS / AFP / POOL

Spain’s left-wing coalition government of PSOE and Unidas Podemos on Tuesday agreed on the country’s Housing Budget for 2022 and with it big changes to the country’s property laws.

The proposed new legislation still has to be approved by the Spanish Cabinet, with no date set yet, lots of questions still to be answered and so far plenty of opposition from right-wing parties PP and VOX. 

The Bank of Spain has also warned that studies conducted in the US, UK and France have shown that measures such as state rental subsidies end up increasing prices.

But if Pedro Sánchez’s government gains the support of the Basque Nationalist Party (PNV) and the Republican Left of Catalonia (ERC), these new laws signalling increased regulation of Spain’s property market will come into force in the near future. A win for some, a loss for others. 

Here’s a round-up of the main proposed changes to property laws in Spain:

Price freezes with some benefits

Spain’s future housing law has a clause focused on the regulation of rental prices for large property holders, those with more than 10 homes. 

If the measure is approved by the Spanish cabinet, they must by law lower rents based on the reference index drafted for all contracts in property markets that are under pressure. 

Regional governments will be responsible for informing the national government of where rental prices are spiking and if they want to introduce the rent cap.

In addition, smaller property holders who are letting out real estate in neighbourhoods where prices are ballooning will also have to freeze rents.

If they’re willing to draw up a new contract with a lower monthly rent, tax credits of up to 90 percent on their personal rental income (IRPF) could apply to these landlords.

As explained by Spain’s Minister of the Presidency Félix Bolaños, the new law will “freeze and reduce rental prices “, with “a very powerful package of tax credits for property owners to willingly introduce price reductions”.

Tax on empty homes 

Spain’s potential new housing law will include a tax on empty homes through an IBI surcharge of up to 150 percent with some exceptions.

IBI stands for Impuesto sobre Bienes Inmuebles in Spanish, which translates to tax on property goods, but it also goes by the name SUMA.

It’s a local tax which has to be paid once a year by all property owners in Spain, and it serves as a benchmark to calculate all other Spanish property-related taxes.

As the IBI amount is decided by the town hall in which your property is located, there can be differences of hundreds of euros between municipalities, and there’s also likely to be opposition to the proposed new tax on empty homes. 

Madrid’s PP mayor José Luis Martínez-Almeida has already promised that authorities in the capital will introduce all the necessary measures so that people in Madrid “aren’t affected by this unjustified increase of the IBI by Spain’s national government”.

READ ALSO: How to pay less Spanish IBI property tax

A young couple and their two infant children at the window in an occupied building in Sanlucar de Barrameda, near Cadiz. Photo: AFP PHOTO/ CRISTINA QUICLER
According to a September survey by Spanish property engine Fotocasa, 62 percent of under 35s in Spain face financial obstacles when buying or renting a property. Photo: Cristina Quicler/AFP

More public housing 

Thirty percent of new builds will have to be social housing projects meant for rental, Spain’s new housing law states, a decision which still has to be approved by the Spanish cabinet. 

Spain has the lowest amount of social housing in the EU with 290,000 units, only 1.1 percent of all properties in the country. 

To put it into context, 30 percent of homes in the Netherlands are social housing, 24 percent in Austria, 20.9 percent in Denmark, 19 percent in Sweden, 17.6 percent in the United Kingdom, 16.8 percent in France and the EU average is 8 percent. 

€250 monthly rental allowance

Spain’s Prime Minister announced on Tuesday that as part of his government’s wave of proposed changes to housing laws, 18 to 35 year olds who earn below €23,725 gross per year will be able to get a monthly discount of €250 off their rent.

Tenants would be able to claim a maximum of €6,000 in total over a two-year period whilst vulnerable families will receive extra state aid to cover “up to 40 percent” of their monthly rent.

READ MORE: Spain to give young mid-income earners €250 monthly rental allowance

Property price hike in Malaga 

In other property news, Malaga province has seen the biggest real estate price increases of all 50 provinces in Spain over the past year, up 9.2 percent compared to 2020 and 13 percent higher than in 2019. 

The average price of €2,433/sqm makes the coastal province the most expensive in Andalusia and the sixth most expensive in Spain after Guipúzcoa, the Balearic Islands, Madrid, Barcelona and Vizcaya, new figures from Idealista show. 

According to data from Spain’s Ministry of Development from the first quarter of 2021(the latest figures available), the average price of a home in Málaga province is €240,238.

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MORTGAGES

How Spain will help homeowners with rising variable mortgage rates

The Spanish government and the country's banks have agreed upon a set of measures to help protect more than one million low and mid-income families from rising variable mortgage rates.

How Spain will help homeowners with rising variable mortgage rates

The plan was announced on Monday November 21st by Spain’s Ministry of Economic Affairs, which said that the agreement “will preserve financial stability” in the face of the sharp rise in interest rates that have been applied by the European Central Bank since August.  

The agreement still has to be brought before the Spanish Cabinet on Tuesday November 22nd, before its final approval.  

The deal will help alleviate the effects that high interest rates are already having on variable mortgage bills.  

For example, a person with a €150,000 mortgage at a variable rate to be paid over 30 years spent €448 in October last year, but the same mortgage this October (2022) was €675, which is 50 percent more.

Three in every four mortgages taken out in Spain are variable rather than fixed. 

READ ALSO: Why mortgage payments in Spain could increase by up to €120 a month

What are the new measures and who will they help?

The agreement will help families who earn less than €25,200 per year. They will be able to benefit from an improvement to the Code of Good Practices, which the banks agreed with the former right-wing Rajoy government in 2012.  

The code is currently limited to those with a maximum income of €24,318, but the new agreement aims to increase this.  

Those who benefit from the improved code will:

  • Be allowed to pay only the interest on their loan for five years.
  • Will have the maximum interest on their loan limited.
  • And will have the period in which to pay back the loan extended to 40 years. 

If after these three measures are applied, families are still having to pay 50 percent of their household income to mortgage repayments, then they will be allowed to request a reduction from their bank. Keep in mind though, the bank can refuse this request.  

Finally, if this is not enough or the bank refuses, families will receive a loan in order to help pay their mortgage bills to the bank.  

Previously, families could only benefit from the Code of Good Practices if there had been a significant alteration in their financial situation in the past four years.

This meant that many people were not eligible because the problem had come from the increase in mortgage rates, rather than a change in their own financial situation.

The new measures will also reduce the maximum interest rate that households who benefit from the code will have to pay. Specifically, the maximum will be reduced from 0.25 percent plus the Euribor to -0.1 percent plus the Euribor.

Conditions for new homes will also be included but these will be less favourable. The time in which they have to repay the interest will be reduced to two years instead of five and they can extend the repayment period to a maximum of seven years.

READ ALSO: How to get a mortgage in Spain if you don’t have a job contract

What effect will this have on mortgage repayments?

Spain’s Ministry of Economic Affairs believes that a household with a mortgage of €120,000 and a monthly payment of €524, will now see their bill reduced during the five-year grace period by more than 50 percent down to €246.

What about mid-income earners who don’t qualify?  

The measures will also introduce a new Code of Good Practices that focuses on the middle class. The objective is that these families will have “a more gradual adaptation” to the new interest rates.

This will be extended to those who earn up to €29,400. In addition, families who allocate more than 30 percent of their income to mortgage repayments will be able to benefit from it, although they will have to demonstrate that their mortgage burden has risen by at least 20 percent.

For these middle-class earners, the banks must offer a freeze on payment increases for 12 months, so they will continue to pay the same bill for one year.

Once that year has elapsed in which the instalments will not be able to rise, they will be offered a lower interest rate on those twelve months that have been frozen, which they must pay at the end of the loan period.

They will also have the possibility of extending the term of their mortgage by seven years.

Is there any other financial help for those struggling to pay their mortgages?  

Yes, other new measures being introduced include expenses and commissions being reduced to facilitate the change from variable to fixed-rate mortgages.  

READ ALSO: How to change from a variable to a fixed mortgage in Spain

Fees for early repayment and changing your mortgage from variable to fixed rate will also be eliminated during 2023.  

The two Codes of Good Practices are expected to be available from January 1st 2023, and will be voluntarily adhered to by financial institutions. However, if the banks sign the agreements, they will be obliged to comply.

The first Code of Good Practices approved in 2012 was signed by almost all credit institutions in Spain. 

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