Renting or buying a house: what to choose

We offer you guidance so that you find the most recommendable option for you
At the time of looking for a new home it is customary to wonder what is more convenient, renting or buying. This decision involves several factors, such as the appropriate time to buy your home, but the principal one has to do with the economic impact on the future buyer or tenant. Deciding what suits us best is a question of studying the numbers and dedicating time to it. Below we indicate the variables you must take into account when deciding whether it is best to buy or rent a property.
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Initial payment

Whether buying or renting a home, you inevitably face a series of initial expenses. However, these differ significantly based on the option chosen.

Initial payment for rent

  • Deposit. Average rent in Spain in 2016 was approximately €700 per month. This figure is intended as a guide for comparison purposes. If the usual practice is that they require us to pay 1 to 3 months' rent by way of a deposit, the initial payment just for moving can be from €700 to €2,100.
  • First monthly payment. Together with the deposit, you usually pay the first monthly rent on signing the lease/rent.
  • Estate agency. If the search and rental contract is managed through an estate agency, the fee is tied to the use and customs of each georgraphical area, but usually they charge one months' rent. Therefore, taking the guide figure o the average rent in Spain as a reference, we need to add a further €700 to the costs.

Initial payment for purchase

Assuming you are going to apply for a mortgage, we will take a €120,000 property as an example in order to calculate approximate initial costs. To the price of the home you have to add a series of expenses associated with the purchase and the formalisation of the mortgage, which are usually on the buyer's account and are usually, among others, the following:

  • Assets. The most common situation nowadays is that the bank finances up to 80% of the home you want to buy. The remaining 20% has to be paid at the moment of signing the deed of sale, that is, in addition to the amount obtained with the financing, you will have to deliver the remaining amount of the purchase price of the home. If we want to buy a home at €120,000, €24,000 must come from our own capital. Including administrative taxes and expenses.
  • Notarization. The granting of the deed of sale and also of the loan agreement with mortgage guarantee must be carried out in the presence of a notary public, whose fee depends on the price of the transaction.
  • Register entry. It is always advisable to enter the purchase and sale document into the Property Register, because when notice of this is published it provides protection against third-party claims. Mortgages must be entered in the Property Register.
  • Tax on Documented Legal Acts (IAJD in Spanish). This is a tax paid on documents such as deeds, certificates, and notarized wills. When a home is sold the buyer must pay, depending on the region of Spain, between 0.5% and 1.5% of the price of the sale contract, as long as the sale represents a first transfer for purposes of VAT. If a mortgage loan has also been granted then an amount between 0.5% and 1.5% (again depending on the region of Spain) of the total mortgage liability must also be paid. For a mortgage of €96,000, the stamp duty on the deed of sale would be €960 (at a rate of 1%). For a mortgage of €130,000, the stamp duty on the deed of sale would be €1,300 (at a rate of 1%).
  • Appraisal. This is requested if you apply for a mortgage loan. The price for this will vary depending upon the number of square meters and other characteristics of the home.
  • Management. The mediation of an administration agency may be necessary if you request a mortgage, and its cost is variable according to the administrative steps to be carried out.
  • VAT. Purchase of a new home is subject to payment of Value Added Tax (VAT), which for transactions of this type is 10% of the total amount of the sale price paid. For social housing under a special regime or public subsidized housing offered by developers, VAT of 4% applies. If not included in the final price, this expense is €12,000 for a home of €120,000.
  • ITP. If you are buying a second-hand home, you must pay Transfer Tax (ITP). Transfer tax varies between autonomous communities; however, average transfer tax is 8% on the actual value of the property. In the case of a home using whose real value is €120,000, it will be €9,600.
  • Registry verification.
  • Opening fee or subrogation fee.

If you have requested a mortgage of €120,000, for example, the initial payment of the purchase of an apartment or house of €120,000 can amount on average to €35,400 with VAT; or 23,400 if the VAT is already included in the final price of the home.

Monthly payment

As we have explained previously, as an example, the average price of a rent in Spain is €700, with big differences between provinces. In another respect, for a variable-rate mortgage of €100,000 at Euribor + 1.25% to be repaid in 25 years, the monthly instalment is €388. The difference is €312 in favor of the mortgage.

In this way, while the initial cost is much more economical in the case of rent, considering the monthly payments and the average expenses, the mortgage instalments are smaller.

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Additional expenses to be taken into account

When deciding between renting or buying a home, there are other additional expenses, apart from the initial payments mentioned for each case, such as the payment of the monthly rent or the monthly mortgage instalment.

Depending on the specific case, when buying a home it is recommended to contract a home insurance policy, at least against fire. Moreover, the owner will have to pay Property Tax as well as the compulsory owners' association fees. These last two expenses will not exist in the rent unless there is pact to the contrary in the lease agreement.

Buy or rent

BBVA offers its customers and non-customers a new tool that will help them make a decision about whether to buy or rent. The Buy or Rent feature is now available in BBVA Valora. It can be used to calculate the different costs associated with buying a house or paying monthly rental installments. All you have to do is enter some details, such as the time you expect to live in the house, or how much it costs, so that we can offer you some useful information for making a complicated decision.
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