Although Spanish banks have eased up on lending money for house purchases, many are finding it better to either pay cash or borrow the money elsewhere.
Whilst some banks advertise a rate of 2% for mortgages, the average is 3.88%, well above the Euribor rate of 0.50%, which means they are being very greedy. The other issues for borrowers are the terms of mortgages in Spain which are far from favourable and the fact that they will only lend a fraction of the amount required.
Statistics show that, out of 12,273 house purchases in Alicante, only 4,483 were financed by a mortgage. Many of the cash purchases were made by foreigners at bargain basement prices but there are also an increasing number of Spaniards who have saved sufficiently to buy their own home at current values.
As I have said before on this blog, I believe that one of the main reasons for the crash in the housing market here in Spain was greed. The builders and promoters got greedy when they thought that people would pay any price for a home and the banks got greedy when they thought that huge profits could be made by lending money for mortgages. Both got their fingers burnt when people would no longer pay the spiralling prices and those that had were unable to keep up with their loan payments.
Under the Spanish mortgage system, even if you hand over the keys to your property, you still owe the outstanding debt (plus interest). Only if the banks are able to sell your property is the debt cleared. That punitive system did not help the banks though because, without a source of income, many could not pay even one cent of the debt they owed.
To make matters worse, many banks had also over lent to constructors who they believed would sell all of the properties they could build and more. As the constructors went out of business, the banks were left with unpaid loans to them as well. Lending to both the builders and the buyers cost the banks dearly.
Is it any wonder then that people are happier to buy their homes with cash and avoid using the unscrupulous banks for the purchase.