It’s not all that pretty: what you should know about ICO guarantees for mortgages

Accessing a mortgage is not exactly easy. If we leave aside the increase in interest rates that has taken place in recent years, assuming that we find something to our liking, and within our reach, the banks ask us in advance for 20% of the value of the apartment to be able to mortgage us just 80% of the total value. And we say that 20% of a property worth 200,000 euros is 40,000 euros. This means that many people cannot afford to take out a mortgage from the bank. Luckily, this is going to end.

In addition to 20% of the mortgage, we must also have other money in advance that the bank is going to ask us for, such as insurance and miscellaneous expenses for the purchase and sale of the property. This, added to the high price of rents in our country, makes it very complicated, almost impossible, to save to buy our own home.

What are ICO guarantees?

The ICO guarantees They are a series of guarantees approved by the government that will allow the State to guarantee young people, under 35 years of age or with minors in their care, who want to buy their own mortgage. This means that, instead of giving us 80% of the value of the property, thanks to these guarantees we will be able to obtain practically 100% of the necessary value, having to pay only the fees and expenses.

There are several conditions to be able to access these ICO guarantees:

• Be natural persons, of legal age, with legal residence in Spain for at least two years.
• Be under 35 years of age or younger dependents.
• Be your first home.
• Maximum guaranteed amount.

In this way, all these people who want to invest in buying their own home will be able to do so without having to wait several decades to save that amount of money, something that is increasingly complicated taking into account the rental prices in this country.

However, is everything really so pretty?

The fine print of ICO guarantees

Although at first it may all seem very tempting, and the only way to buy a house… we must keep in mind that, although taking out a mortgage is selling your soul to the bank, doing so with an ICO guarantee is selling it twice. And these endorsements are often so poorly explained that they often give rise to doubt and confusion.

Therefore, before hiring one, take these factors into account.

• Just because they guarantee 20% does not mean that the house will cost you 20% less. We should not confuse endorsement with subsidy. Although the state answers for us in that 20%, we are going to have to return 100% of the loan to the bank. And this means that the larger the amount the bank lends us, the more interest we will end up paying. Therefore, the house will cost us much more if we opt for this guarantee.
• Guarantee limit. Although an exact amount has not been specified, it is clear that there will be a limit on the amount of money we will be collateralized for. We will not be able to buy a luxury house and expect that 20% to be guaranteed. Almost certainly, the guarantee, in addition to having the limit, will only be valid to take out a mortgage that does not exceed a certain percentage (30, surely) of the payroll.
• Worst conditions. The State guarantees us, but the banks continue to put the risk. Therefore, as the risk is higher when giving 100% than just the usual 80%, it is likely that many banking entities will put worse conditions (worse interest rate, for example, or more payment requirements and guarantees) to those that they hire them.
• Limitation for the use of housing. During the duration of the guarantee, which is 10 years, the person must live in that home no matter what, and cannot sell it, rent it or carry out any other activity in it. It must also be his habitual residence, unless some particular circumstances arise.
• Expenses are not included. The 20% of the ICO guarantee includes the difference from the 80% that the banks give to 100% of the purchase value (as long as there is a positive appraisal). However, there are still other expenses that the buyer must assume no matter what. That is, we must save approximately 10% of the total value to be able to cover these expenses, such as taxes, insurance, etc.

As we see, by hiring these guarantees we are selling our soul twice to the bank. Now that we know the fine print we must think, are we really interested?