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MONEY

How will rising interest rates affect my life in Spain?

The ECB's decision to raise interest rates in a bid to soften the blow of inflation will have negative consequences for some and a positive effect for others. Here's how it will affect those with loans, mortgages and savings in Spain.

spain interest rates
The increasing costs of loans and mortgage payments comes at a time the Spanish economy is facing a perfect storm of financial pressures. (Photo by CESAR MANSO / AFP)

The European Central Bank’s (ECB) Governing Council raised interest rates on Thursday for the first time in 11 years, with further increases likely in the coming months.

The ECB has raised its interest rates by half a percentage point, to 0.50 percent, to try and slow inflation in the broader Euro area, which in June jumped to 8.6 percent.

The increase represents the biggest increase in 22 years.

In Spain, inflationary pressures are being felt even more severely, reaching record levels.

READ ALSO: Rate of inflation in Spain reaches highest level in 37 years

Why have interest rates been raised?

When prices are increasing too quickly – in other words, when inflation is too high – putting up interest rates is one way to try and slow it down and get the rate back down to the ECB’s 2 percent target rate. 

The theory – and hope for consumers – is that this reduces the prices of products and services in the short term, although Christine Lagarde, President of the ECB, said this week that war in Ukraine likely means that inflation “will remain at an undesirably high level for some time,” and warned that “the economic horizon is darkening” across the Eurozone. 

“Food and energy will continue to be higher than expected,” the president added.

How does it affect life in Spain?

For those of you living in Spain, the main effect of increasing interest rates is on loans, mortgages, and savings, something many foreigners living in Spain rely on.

The impact can be positive or negative, depending on your financial situation.

If you have substantial savings, you could make more money on that lump sum as your savings will become more profitable, particularly if interests rise again.

On the other hand, if you are looking for a loan or credit, or repaying debts or mortgages, doing so could become much more expensive. 

READ ALSO: The products that are more expensive than ever in Spain

Simply put, an increase in interest rates makes loans more expensive – not only at the consumer level but for national governments and banks, too – and it also directly affects mortgage applications and those applying for credit, as well as people who pay a variable rate mortgage based on the Euribor.

Fixed rate mortgages, experts say, are more insulated to interest rate rises.

For many years in Spain, the vast majority of new mortgages signed (as much as 95 percent of them) were variable rate and thus vulnerable to changes in interest rate payments

But that trend has reversed in recent years, with around 80 percent of Spanish mortgages now being fixed rate agreements better protected against increased interest rate repayments.

The Euribor is a measure of the average rate of interest rates that banks lend to one another across the Eurozone and used, in effect, as a reference for mortgages. 

This measure has also jumped up in recent months and is now close to 1 percent, and experts forecast that it will see out 2022 at around 1.5 percent this year and that it could surpass 2 percent in 2023. 

These increases in the Euribor rate can have a big impact on consumers and families. For example, the repayments on a standard variable interest rate mortgage loan (a €150,000 loan to be repaid over 15 years, for example) could shoot up by more than €150 per month.

Impact on living costs in Spain

The ECB’s interest rate rises come at a time when Spanish consumers are facing dire economic circumstances, crippled by skyrocketing inflation, utilities bills and increasings goods prices.

According to a survey published by Banco de España this week, the percentage of Spanish families that are forced to use more than 40 percent of their gross income to make debt repayments could rise to about 15 percent as a result of the interest rate rises.

According to the report, the proportion of households with this level of financial vulnerability was just 11 percent in 2020 and 10 percent in 2017.

The increase in debt-strapped consumers was concentrated in the lowest-income households, which jumped from 9.5 percent to 15.1 percent, and those where the main breadwinner in the household was under 35 years of age, which went from 4.4 percent to 6.8 percent, and among the unemployed, which almost doubled and went from 4.9 percent to 8.7 percent. 

The increasing costs of loans and mortgage payments comes at a time the Spanish economy is facing a perfect storm of financial pressures. 

The economic shutdown during the Covid-19 pandemic, which included heavy job losses, combined with rising utilities bills, food prices and rampant inflation – partly caused by war in Ukraine – means that at the very time when many Spaniards might consider taking out a loan to help them survive these pressures, doing so has become more expensive.

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PROPERTY

Why are Spanish homes so dark?

Despite being known for its year-long sunny weather, Spain is the EU country with the fewest homes with natural light, often intentionally. Why is it that when it comes to spending time at home, Spaniards seem to love being in the dark?

Why are Spanish homes so dark?

Spain – the land of sunshine. The country gets between 2,500 and 3,000 hours of sun per year on average, almost double the 1,600 hours the UK gets, for example.

You’d probably assume that finding a bright apartment in such a sunny country would be a piece of cake, but unless you’re renting or buying a modern home, it might be trickier than you realise.

More than one in ten Spaniards live in dwellings they feel are “too dark” – the highest percentage among all EU countries, according to figures from Eurostat.

As far as dark homes go, Spain is head and shoulders above the EU average of 5.9 percent, and higher than other nations with a high rate of gloomy homes such as France (9.5 percent), Malta (9.4 percent) and Hungary (7.7 percent).

At the other end of the brightly lit spectrum, it’s no surprise to see that countries with cloudier skies and darker winters such as Norway, Slovakia, Estonia, Czechia and the Netherlands have homes that let in plenty of natural light, and yet Spain’s sun-kissed Mediterranean neighbours Italy and Cyprus do make the most of the readily available light.

Dark homes are almost twice as common in Spain as the EU average. Graph: Eurostat.

So why are Spanish homes so dark?

Is it a case of hiding away from the sun, and keeping cool during the summer months? Or is it something else? 

Apartment blocks

The vast majority of Spaniards live in apartments as opposed to houses, often in tightly-packed cities with narrow streets.

In fact, in Spain 64.6 percent of the population lives in flats or apartments, second in the EU after Latvia (65.9 percent.)

By contrast the EU wide average is 46.1 percent.

By nature of apartment living, Spanish homes tend to get less sunlight.

Depending on whether they have an exterior or interior flat, they might not actually have a single window in the flat that faces the street.

If the apartment is on a lower floor, the chances of it receiving natural light are even lower. Internal patios can help to solve this to some extent, but only during the mid day and early afternoon hours. 

why are spanish homes so dark

A dark, narrow street in the centre of Palma de Mallorca. Photo: seth0s/Pixabay

Hot summers

During Spain’s scorching summer months, there’s no greater relief than stepping into a darkened apartment building lobby and feeling the temperature drop. 

In southern Spain, and in coastal regions, Spanish buildings were traditionally built to protect against the heat and hide away from the long sunny hours. White walled exteriors and dark interiors help to keep homes cool.

It’s often the case that bedrooms are put in the darkest, coolest part of the apartment, sometimes with just a box-window to allow for a breeze but no sunlight.

Spaniards’ obsession with blinds and shutters

Spain is pretty much the only country in Europe whose inhabitants still use blinds (persianas), even during the colder winter months.

In this case, rather than it just being down to keeping homes cool during the sweltering summer months, their usage is intrinsic to Spain’s Moorish past and the fact that they provide a degree of privacy from nosy neighbours. By contrast, northern Europeans with Calvinist roots such as the Dutch keep the curtains open to let in natural light and because historically speaking, keeping the inside of homes visible from the street represents not having anything to hide. But in Spain, the intimacy of one’s home is sacrosanct, especially when the neighbour in the apartment building opposite is less then ten metres away.

Keeping the blinds or shutters down also has the advantage of making it easier to have an afternoon nap (the siesta, of course) or to sleep in late after a long night out on the town. 

In any case, it seems hard to believe for some foreigners that many Spaniards are happy to live in the dark whilst spending time at home, regardless of whether they’re sleeping or not. 

A byproduct of this? Dark, gloomy homes.

why are spanish homes so dark

Spaniards aren’t fans of airing their dirty laundry, at least metaphorically speaking. Blinds have historically provided the privacy they’ve wanted from their homes. Photo: Quino Al/Unsplash

The long, dark corridors

Spanish apartments have plenty of quirks that seem odd to outsiders, from the light switches being outside of the room, the aforementioned shutters, the bottles of butane and last but not least, the never-ending corridors. 

Most Spanish homes built in the 19th and 20th century include these long pasillos running from the entrance to the end of the flat. They were meant to provide a separation between the main living spaces and the service rooms (kitchen, bathroom etc), easy access to all and better airing and light capabilities. But when the doors to the rooms are closed as often happens, these corridors become the opposite of what was intended: dark and airless.

Navigating these windowless corridors at night is akin to waking around blindfolded.

dark corridor spain

Light at the end of the tunnel? Dark corridors are a common feature of Spanish homes. (Photo by Josep LAGO / AFP)

Are Spaniards rethinking their dark homes?

Times are changing, and modern designs are experimenting with more spacious, light-filled, open-plan apartments, especially as the Covid-19 lockdown forced many Spaniards to reconsider their abodes. 

It’s also increasingly common to see property ads stressing that the property is diáfano, which means that natural light enters the home from all sides.

However, the vast majority of Spanish homes are still gloomy for the most part, often intentionally.

A combination of traditional building styles, the crowded nature of apartment block living, the use of shutters, the desire to keep homes private, and the long windowless corridors mean Spanish flats can seem dark if you’re new to the country, and with good reason.

Ultimately, it is worth remembering that Spanish society is one that largely lives its life outdoors. Living in smaller apartments, Spaniards generally spend less time at home and more time out and about in the street.

Native to a hot and sunny country as they are, Spaniards’ homes are a place of rest, relaxation and, crucially, sleep.

Spanish people have enough sunlight and heat in their lives; they like to live, therefore, in homes designed to keep cool and dark.

READ ALSO: Why are Spanish homes so cold?

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