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Spanish mortgage market cleans up its act

13th March 2012 Print

Whilst mature mortgage markets such as that of the UK have learned from their mistakes and now heavily regulate the selling of financial products, Spanish banks are currently licking their wounds and suffering under the weight of repossessions on their balance sheets. New Prime Minister Rajoy is on a clean-up mission.

Independent Mortgage Consultant and Owner of Fluent Finance Abroad, Marc Elliott, explains, “You have to remember that Spain has only been a fully-fledged capitalist democracy for 32 years, and without the infamous dictator Franco for 36, so its banking and mortgage systems have had comparatively less time to mature. As the property market boomed, many banks took a naïve approach to lending money and they are suffering for it now. Whilst the UK has various checks and balances in place to prevent the recurrence of scandals such as the endowment mortgage mis-selling of the 80s and 90s, Spain has yet to get a watertight grip of its financial products although Rajoy is making huge strides.”

Marc continues, “Whilst Spain didn’t have ‘official’ subprime mortgages in the same manner as the US, throughout the late 2000s it did fall victim to unrealistic mortgages being handed out by greedy banks with the help of unscrupulous mortgage advisers, real estate agents, lawyers, surveyors, valuers and accountants. Local newspapers bore adverts offering fake P60s for credit purposes and many people took advantage. The consequence today is banks having to repossess a significant number of homes making them huge real estate owners and putting a strain on their balance sheets – particularly as Rajoy is asking banks to make additional provisions. The Government is forcing takeovers and mergers – Banco Sabadell acquired CAM bank for one euro in December 2011, BBVA acquired Unnim bank for the same price this month – in order to accelerate the clean-up.”

Marc gives his insight into today’s Spanish mortgage market:

Are Spanish mortgages still available?
Whilst the main priority of most banks is to try and offload the stock that they are currently in possession of, rather than lend money to new borrowers, there are of course still mortgages available. ‘Good’ deals, such as those seen in the past, are either non-existent or hard to find but if you have a good income and clean credit history the banks will lend. Certain banks did not fall into the reckless ‘subprime’ trap and are lending pretty much as they were prior to the credit crunch.

What percentage loan should I expect from lenders today?
Dependent on the individual application, a general rule of thumb in 2012 is 70 – 80% for Spanish residents and 60 – 70% for non-Spanish residents. Current lenders will now lend only on the purchase price or the valuation - whichever is lower.

Why are 100% (plus) mortgages still available – is this not madness?
Mortgages are indeed available at 100% - or even 110% to include purchase costs - but only for specific properties or developments that are owned directly by the banks. You will not be offered a 100% mortgage on a traditional resale home.

Should I therefore buy a property direct from the bank because it is easier to get a mortgage?
Not necessarily - it does depend on your circumstances. If you are a first time buyer and you don’t have a large cash deposit then it would be wise to consider a bank property. If you have a sizable deposit at your fingertips it would probably be better to look at the traditional real estate market as these properties tend to be slightly better value for money. At the moment banks are looking to get the best price possible for their properties to try and recoup the original funds that were lent, they do this is by slightly inflating asking prices and offering excellent finance terms such as little or no money down deals.

Shall I just purchase a property with my own funds and be done with the banks?
If you are lucky enough to have readily available funds at your disposal and you can find the perfect property within your budget, go for it. However, if you feel you are limiting yourself this way, then it is worth considering upping your budget slightly by using a mortgage and keeping some cash aside in your bank for a rainy day. Beware it is extremely difficult to release equity from a Spanish property at this moment in time if you urgently need funds sometime in the future.

What do I do if I am interested in finding out more about Spanish mortgages?
Get informed and do not take the first piece of advice you receive to be gospel. Speak to numerous banks or seek professional independent advice from a qualified person operating in your area. Always speak to more than one mortgage consultant to make sure you are satisfied that you are getting the best person to represent your interests. If anyone suggests that obtaining mortgage finance in Spain is easy, they are not being completely truthful. Securing ‘debt’ should never be entered into lightly.

I already have a Spanish mortgage that I am worried about, what can I do?
First and foremost don’t panic. If you are already finding that you cannot keep up with mortgage repayments then it is essential that you take steps to deal with the problem. Again, consult an independent expert to see if there are any alternatives out there in the market which could solve your problem and also speak to your bank to see what ideas they have – take an independent expert with you to this consultation if you prefer. Be warned, bank staff, however nice, work for their paymasters and can only recommend what their banks offer. If you are comfortably keeping up repayments but feel you could get a better deal elsewhere, again, speak to a professional adviser to explore your options.

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