Giving loans to young people for their first home purchase is not a good idea: Catalonia's measure has already failed in the United Kingdom.

The president of the Generalitat of Catalonia, Salvador Illa , announced last week that 500 million euros will be approved to help young people make the down payment on their first home.

This is a problem that affects people under 35 not only in this region but throughout Spain. Young people, whose purchasing power has dwindled in recent years, can't save at least 30% for a down payment, which is ideal before embarking on this transaction.

According to the president, this amount will be paid over five years, and the amount each beneficiary receives will cover 20% of the property at 0% interest and will not be repaid until the mortgage is paid off. Furthermore, according to Illa, the apartments purchased with this money will become part of the community's protected housing stock "on a permanent basis."

The idea behind this formula is for banks to provide 80% of the mortgage, 20% of the down payment to be provided by the Generalitat (Catalan Government) loan , and finally, young people to contribute only 10%, which is intended for administrative and management costs. However, the details of this initiative have not yet been explained, such as whether there is a price limit on the desired home, what the income limits of potential beneficiaries will be, if any, or how the aid will be processed.

However, this idea has already been tested in the United Kingdom , as explained through the social network X Juan Luis Jiménez, PhD in Economics.

Jiménez points out that these types of policies aim to stimulate demand. In the United Kingdom, the "help-to-buy" policy was a similar one, yet it didn't solve the problem of access to the market that many young people currently experience in Spain.

This PhD in Economics summarizes the failures of this measure in the United Kingdom in three points: "Prices increased, supply did not increase, and developers appropriated all the aid." Jiménez, who also contributes the study published in the Journal of Economics in January 2024, also points out what the consequences will be for the Catalan housing market after its implementation: "It will possibly achieve the opposite effect to that desired (it will make purchases more expensive and benefit developers)."

As the study shows, the British measure offered a capital loan of up to 20% of the home's value (or 40% within the Greater London Authority (GLA)) to buyers of new-build homes.

"We estimate different effects depending on the cap (and corresponding supply conditions) considered. In the case of the GLA, we find that the more generous London Housing and Utilities program generated higher prices for new construction, but had no discernible effect on construction volume . Both effects arguably run counter to the policy objectives of improving affordability and promoting new construction," the study notes in its conclusions.