The parable of the Spanish family who played by the rules

Pedro Garcia graduated in economics from the University of Cadiz in 1998. The Spanish economy was booming, and it didn't take him long to get a job working for a local bank in the mortgage approval department. Soon after graduating, he married his university girlfriend, Valeria. After a year of teacher-training, Valeria got her first job as a schoolteacher in a local school. In 2001, their first child, Anna Maria, was born.

Unsurprisingly, the Spanish housing market was much debated in Pedro's office. Young families like his were struggling to afford to buy properties like those of their parents. Prices had been booming for almost ten years. Some economists were saying there was a bubble. Pedro wasn't sure. He worried about the coastal property boom, but in towns and cities where he and Valeria wanted to live there would always be demand for good properties. Spain was in the European Union and had just joined the euro. Interest rates were lower than ever before, and the euro represented stability relative to Spain's past.

Pedro wanted to take out a big mortgage and buy a three-bedroom apartment in Cadiz, which they could just about afford. Valeria wasn't sure. Wouldn't it be wise to save more and perhaps wait for property prices to calm down? Pedro, and her parents, convinced her otherwise. “He has a good job in the bank, and you are a public employee, with high job security. Take out the mortgage and make a nice home for Anna Maria.” They signed the deal in 2002.

Over the course of the next ten years, their plans fell apart. Pedro and Valeria saw the value of their house collapse. Initially, Pedro held on to his job, protected by Spanish labour laws, but his salary was cut. Despite working in the public sector, Valeria first saw her salary reduced by 30 per cent, and was then made redundant in another round of budget cuts.