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One of the typical questions that part of the population faces is when should it be to buy a flat.

The decision to leave the family home comes from personal circumstances, not financial ones. But the decision to opt for a rental or a purchase is a very complex financial decision. And most do not have financial education to deal with this dilemma efficiently.

We are going to study two graphs in detail. The first is a graph on the average price per square meter in Spain, from 2007 to 2019. What this graph explains is that prices fell during the previous crisis, especially from 2011 -the worst of the crisis came to Spain in 2012-.

The second graph is the evolution of the Euribor, an indicator that tells us the interest rate that we are going to pay for our mortgage. When we take out a mortgage, we have to choose between paying a mortgage at a fixed rate -we will always pay the same, regardless of the evolution of the Euribor- or at a variable rate -our payments will vary if the Euribor goes up or down-.

In a fixed-rate mortgage, it is normal for the interest rate applied to us to be higher than the Euribor when the rates are low, and it is possible that it is somewhat lower than the Euribor if the rates are at a historically high level and we gather many characteristics that make us a good client. But the norm is to pay a somewhat higher Euribor rate.

In a variable-rate mortgage, a rise in the Euribor can cause a big rise in the installment -which we may not be able to assume- and a drop can give us great joy. But, in financial matters, it is better to follow the saying "plan for the best and prepare for the worst." So let's study the case of fixed mortgages.

The first rule to keep in mind is that when interest rates rise, real estate prices fall sooner or later. The reason is that most homes are bought with a mortgage, as interest rates rise, the mortgage bill rises and there is a tendency to look for lower-priced homes, simply because they are the ones that can be paid for. In addition, the demand for apartments falls for fear of not being able to meet the mortgage payment. Due to the law of supply and demand, when the demand for flats falls, their price falls.

The second rule is that, without having to be a mathematician, looking at the two graphs you can see that in times of serious economic crisis, the price of apartments plummets. In addition, to stimulate the economy, interest rates are usually lowered. That combination, low price and low rates, is ideal for buying a home. Until then, it is better to rent and try to save. The differences can be brutal. For example:

We want to buy a house of 100 square meters. With a 30-year mortgage. At a fixed rate, Euribor +0.75%. I do not include taxes, entry, etc... I only count the mortgage payment, not the rest of the associated expenses.

-Example 1: Year 2008: House price 195,000 euros. The mortgage covers 80%, that is, 156,000 eruos. Fixed rate at 6%. Approximate monthly fee 937 euros.

-Example 2: Year 2011: House price 195,000 euros. The mortgage covers 80%, that is, 156,000 eruos. Fixed rate at 3%. Approximate monthly fee 659 euros.

-Example 3: Year 2016: House price 150,000 euros. The mortgage covers 80%, that is, 120,000 eruos. Fixed rate at 0.8%. Approximate monthly fee euros 378 euros.

Please remember that in all three examples the house is the same. Only the market price and interest rates vary. The moral of this story is simple: it is very convenient to buy when there are falling prices and low rates.

We cannot expect a fall in prices similar to the one that occurred after the 2012 crisis, which will not happen again. But we can expect a fall in prices soon -Bankinter experts calculate a fall in prices over the next two years- and most analysts consider that next year -at the latest- interest rates will begin to fall. It is, therefore, very likely that within two years we will be at a good time to buy a home with a mortgage.

Holders & Brothers team.


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