Friday, January 02, 2015

An impossible situation for Spanish buyers (and sellers)

In the so called “boom” years it was easy to get a mortgage of 100% or even more to buy property on the Costa Blanca. Builders could not keep up with the demand and so prices rose almost weekly. No matter though, the banks would and did lend you whatever you asked for.

Things are very different now. House prices continue to plummet and unemployment is high, so banks are very reluctant to lend because of the high risk factor. In fact it is impossible to get a mortgage here in Spain no matter what the price, the status of the buyer etc. Some areas are worse than others – Elche tops the list but is closely followed by other parts of the Valencia/Murcia region.

Of course, without access to a mortgage, only a handful of Spaniards can contemplate buying a house even if the prices are rock bottom and represent excellent value. And those that bought at the height of the market face the depressing reality of falling values which means that the amount they owe is a hell of a lot more than the return they would get if they tried to sell. Estimates set the value of many properties bought during those golden years at 30% of the debt. The only recourse for those that have a property they no longer can afford is to try  and rent it out but then that is a saturated market. The amount they can hope to get is a fraction of what they are paying for their mortgage.

From the banks point of view this could spell disaster if people, who were unable to continue payments of their mortgage, could simply hand over the keys and wipe out their debt. That is not how it works here because there are clauses in Spanish mortgage contracts that mean you have to pay the outstanding debt even if the house is no longer yours.

If owners can’t sell their properties, then neither can the banks. In fact it is harder for the banks to sell properties because many that have been left vacant for any length of time have been vandalised. Those that have been left on our estate have been stripped completely of anything of value including doors, windows, cable etc. etc. All that is left from most is an empty shell and I dare say that would go if it was possible to salvage the bricks.

Experts say that it will be at least 2017 before there are glimmering signs of a recovery in the Spanish mortgage market. Of course, there is some evidence of a recovery in the building trade with new projects being started and those that had stalled coming back to life. Those properties though are not being bought with Spanish mortgages. They are going to foreign investors sourcing capital elsewhere.

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