Mortgage and finance update

This week has seen a number of mixed messages coming out of Spain.

On a positive note Q2 saw the highest amount of property sales to foreign buyers recorded for 4 years.

On a more negative note,( dependant which side of the fence you are on), house prices continued to drop reaching 2004 levels, with an expectation prices will drop further over the next 12 months. It has always been my personal view that prices would need to drop to 2002 levels before any sort of recovery happened and we are looking very much like we are heading this way.

The Spanish independent Bank audits are due out this week with the Spanish Government stating that the amount of cash required will be in line with the previously expected 60 billion however other sources are rumoring the situation has worsened since the initial figures were published and that the amount of extra capital required could be as high as 120 billion Euros.

The 12 month Euribor for September for mortgage completions and reviews dropped to 0.87% the lowest ever recorded level with all indications suggesting a further drop in October.

Mortgage pricing has remained stable since the last round of increase in margins which took place late July and early August. Average margins above Euribor being granted are around 3.25%.

There has been no visible relaxing of criteria’s by the Banks and in the medium term this is highly unlikely to happen particularly given that part of the deal for releasing emergency capital includes a change to their overall regulation.

The Bank of Spain requirements on due diligence of mortgage applications remains historically high. Paperwork requirements for “ know your client rules” and the level of evidence a Bank must hold on file to justify lending is extreme even for low loan to values. Mortgages are still being granted but applicants can expect to be requested to supply extensive evidence of affordability including what appears to be various duplication in paperwork requirements.

International Mortgage Solutions
www.international-mortgages.org

Average mortgage rate in Spain at 4.32%

Euribor is at a record low

Data out of Spain this week continues to be somewhat gloomy with on the surface little to cheer about on the financial front.

Many banks in Spain announced their half year profits this week and most made large provisions to cover future losses on assets and in order to come into line with new capital ratios enforced by the Bank of Spain.

Average interest rate data showed that average rates in Spain are now 4.32%. This means margins above Euribor are now topping 3% across the residential lending market in Spain.

What is interesting from this data is that whilst during boom times there was a significant difference between the margin above Euribor a Spanish Resident could achieve, in comparison to a Non Resident,  given Non Resident mortgage rates are now averaging 3% to 3.25% above Euribor, and total average rates are 4.32% this discrepancy on residency status has actually all but disappeared.

For many banks who previously saw Non Resident mortgages as more risky and therefore priced them accordingly, the view has changed somewhat.

As Spanish unemployment rises each month and economic data suggest further contraction borrowers from other countries, who are in a more stable economic environment, have become a more attractive proposition for the Spanish banks and are seen as a lower risk.

The mentality shift around Non Resident versus Resident loans is not true of every bank but there is a now a wind of change on how Non Resident applicants are viewed and the current pricing now reflects this change across a number of lenders.

International Mortgage Solutions
www.international-mortgages.org

Record-low Euribor will cut mortgage payments by up to 20%

Euribor rate is good news for borrowers

In times of recession, social and wage cuts and rising unemployment, good news is scarce. But those citizens whose mortgages are due for review will at least reap the benefits of the descent of the Euribor. Falling interest rates and, according to analysts, the prospect that the European Central Bank are to lower them again, have led to this European mortgage index dropping to its lowest level since it began trading in 1999.

This week, the daily Euribor rate stood below 1%. Using the available data, (in the absence of data for the last two sessions confirming the last thousandth), it is calculated that the monthly index will close July at 1.062%, which means that mortgages with the longest terms will benefit from a discount of up to 20.5%.

The Euribor, which is the rate at which banks lend to each other, has now registered nine consecutive months of declines. The biggest drop, however, has been in the last month, going from 1.219% to 1.062% after the ECB decided to lower interest rates from 1% to 0.75%. Any changes in this indicator impacts on citizens who pay a mortgage, especially those who bought before the start of the crisis, and now mortgage holders whose loans are due for review can breathe a sigh of relief.

The mortgage holders who will benefit most from the falling rate are those with longer-term loans. If the loan has a duration of 30 years, for an average loan the payments will fall by 13.9%, for 40 years they will fall by 17.4% and for those who signed loans of 50 years, by 20.5%.

There is particular benefit from the descent in the Euribor, for those who signed their loan before the real estate sector began to collapse, since mortgages contracted at that time were subject to lower spreads of between 0.40 and to 0.75 points.

This won’t be the case for those who have contracted their loans in recent years or are about to do it now, because analysts believe that the much higher differentials applied to these contracts, swallow up any drop in the Euribor.

Even so, Professor of Applied Economics at the University Pompeu Fabra, José García-Montalvo, stated that in the past two months “we are seeing a contention and even a decrease in the risk premium over the Euribor”. According to the National Statistics Institute, the average interest rate at which mortgages were granted in the month of May was 4.32%, which represented a decline from the previous month.

El Pais reported that whoever buys a house now will at least have the consolation that the prices of apartments are continuing to fall, at an even faster pace, and are now 23.6% cheaper than in 2008, and that if they buy before the end of the year they may still benefit from VAT of 4% and tax relief. Nor shall they have a ground clause included in their contract, which prevented the lowering of the Euribor from a specified level.

García-Montalvo believes that the monthly Euribor will fall below 1% and notes that this circumstance will increase the disposable income of families saddled with a mortgage. However, that gain may be diminished by rising unemployment.

Member of International Financial Analysts (IFA), David Cano, said that the decline is mainly due “to cuts in interest rates and the expectation that they will fall further”, to 0.5%. Cano predicted that the index will continue to relax in the “next six to nine months,” although, in his view, the minimum levels to which the interest rates are heading, also significantly depletes the fall of the Euribor.

Article source: Kyero.com

Bailout good for banks, not for borrowers

It was announced this week that the final details of the package for Spanish banks will be delayed from the 9^th of July to the 20^th July.

Any misinterpretation by the public that this rescue package would ensure credit started to flow again in Spain was quickly quashed  by bank leaders like the Chief Executive of Sabadell group who stated the banks who require aid, which is most of them, will find it more difficult to lend rather than the other way round.

BBVA Chief Executive also went to press this week stating that BBVA had no intention of reducing the price of the vast assets they hold to sell them through but would in fact hold on to them until prices increased. For BBVA it could be argued this is an option given their size and overall balance sheet strength but for other lenders it will not be. BBVA will find prices drop further because of what other banks have to do so how long they can hold out without being realistic remains to be seen. Brave words that I doubt he will finally be able to stick by.

On the ground mortgages still remain available for purchasers with average rates now 3% to 3.5% above 12 month Euribor with the Euribor dropping slightly again this month from 1.26% to 1.21% for completions in July.

Average rates for those buying bank owned stock are between 1.5% to 2% but often at the cost of negotiated purchase price.

International Mortgage Solutions
www.international-mortgages.org

Spanish Mortgage Update – April 2012

The early months of 2012 has seen little by way of good news on both the purchase and mortgage side in Spain.

For the second quarter margins above Euribor which have seen increases across the board early in the New Year do at least seem to have stabilized. No Bank has increased its margins since the cheap ECB funds were made available. Euribor itself has dropped to 1.49% for April making average overall rates in the region of 4.5%.

Mortgages are still available and for some Banks their focus is now on the nonresident market as for the first time in history non residents are seen as a lower risk than residents.

Under pressure from the Government and following changes in legislation Banks are now being forced to more accurately assess the value of stock on their balance sheet and we have started to see much more realistic pricing of Bank stock.

Most Banks have stated over the last few days that they have budgeted to sell double the number of properties in 2012 in comparison to 2011 and discounts and special mortgage terms will reflect this. Whilst this may not be good news for private sellers as the Bank are the agent and the supplier of the funds, recovery will only happen fully when the Banks have shed their surplus stock.

Whilst possibly painful this process must take place before both the mortgage market and the property market can start to move forward.

Buyers considering buying bank stock with a mortgage from the Bank should always ensure they still obtain independent advice for both finance and legalities buying from a Bank does not mean you can assume everything is in order.

International Mortgage Solutions
www.international-mortgages.org

Mortgage pricing

Last week saw more bad news for most Spanish banks as they were yet again downgraded by the ratings agencies.

Whilst the Banks have been provided some respite by access to European Central Bank funding at reasonable pricing most are taking advantage of this and then putting the money back on deposit with the Central Bank so using the cheaper funding to help the balance sheet rather than money to lend to ease the credit crunch. This means it has had no affect on pricing with banks continuing to raise margins above Euribor.

Sabadell group have now adjusted margins three times in as many months and last week moved again from 2.20% to 2.40% above 12 month Euiribor for 70% lending. They remain however at the competitive end of the range with most others now only offering 3% plus above 12 month Euribor.

For best rates possible, which is 1.8% above, clients need to drop loan to values to 50%.

International Mortgage Solutions
www.international-mortgages.org

Buying a property in Spain?

The economic uncertainty in Europe seems to be all I write about these days as it has had, and is continuing to have, a dramatic effect on property sales.

With the crisis continuing the cost of a home on the Costa del Sol has almost halved (compared to five years ago). Bargains can be found all along the coast from Gibraltar to Malaga and with the banks repossessing more and more properties the availability of these bargains seems unlikely to dry up.

As unemployment spreads (Spain currently has the highest unemployment in Europe at over 22%, the highest for 15 years) the banks are dealing with an ever growing list of defaulting clients who can no longer keep up with repayments. This is good news for buyers that are new to the market and who are looking to purchase a discounted property especially as a few Spanish banks are now beginning to lend again.

Bank repossessed properties can be offered for as much as 40% below market value although some banks have been accused of “marking up” prices in order to cover their own expenses. I’m not aware of any proof of these allegations, yet, and of course the banks deny this. Some banks will only agree to lend if you’re purchasing one of their properties. In this case I would suggest getting an independent valuation on the property to ensure the bank is playing it straight. Cash buyers are in a stronger position as they are not reliant on the banks to finance their purchase and therefore can receive bigger discounts. If you are a cash buyer my advice would be to keep this to yourself until a sale price has been confirmed or you may not get the level of discount you expected.

New properties don’t come with such discounts but with the reduction in VAT for new properties, introduced in August, you could still make substantial savings. The reduction from 8% to 4% was introduced to attempt to reduce the growing number of unsold properties and try to breathe life into the struggling market. However, the reduction is only temporary and the rate will revert back to 8% in the new year (newly elected Rajoy has made reference to extending this reduction but has not confirmed anything yet).

Regular “subastas” (auctions) are held in various locations along the coast and these are another good place to pick up a property bargain. Some banks send their properties for auction at these events but private sellers are also able to list their homes. There are many auction houses on the coast so the easiest way to find one is to do a web search for the town nearest to you for example “property auction Marbella”. Alternatively contact any Spanish bank to enquire about their repossessed properties.

If you decide to go down the auction route then beware – auctions can be a battlefield and spontaneous decisions can end up costing you more than you planned (Sit on your hands if you don’t intend to bid. A casual eye-scratch could cost you your life savings!). Fix a budget and do not exceed it. Be sure the property you’re bidding on is the right one, is in good condition, with all due diligence, licences and paper work in place and available to view. It’s not always possible to view a property prior to the event but if you can you most definitely should.

If you choose the real-estate agent route then remember that there are thousands of real-estate agents covering the Costa del Sol so be sure to look at as many as you can. Many agents use a system by which they share property listings so a property listed by Estate Agent 1 may well also be listed by agent 2, agent 3 and agent 4. Most agents do list a number of exclusive properties as well.

There are definitely bargains to be had at the moment. Follow my checklist to ensure you get the best deal:

1. Decide what you want – apartment, villa, studio etc
2. Where do you want to live? Coastal or inland?
3. Where do you want to live? The Costa del Sol stretches over 200 kilometres and one end is very different to the other. The majority of ex-pats are to be found between Benalmadena and Estepona. This includes Marbella, Puerto Banus, Nueva Andalucia, Fuengirola.
4. What is your budget? Decide and stick to it. Do not be pressured with sales tactics assuring you that an extra 10k will get you a palace.
5. What is your time frame? Are you ready to buy now or is this a long term plan? The price of a property today is likely to be very different from the price next month or next year. Currently prices are steadily slipping but one month of good growth could bring enough encouragement and confidence to the market to increase prices.
6. New or resale? Do you want to buy a new build or a resale? Following the many corruption trials that have taken place in Spain my most important advice would be to ensure the property has the correct licences in place, whether is it new or old. Older buildings in Spain tend to have no heating and, to be honest, pretty poor construction. Ensure you carry out the necessary surveys on any resale property. New properties are just that; new. Nobody has lived in them so there may be unforeseen problems. If there are occupied properties within the same development then try to talk to the residents – ask them about the property and any known issues.
7. Fees. Be sure you are made aware (ask to be really sure) about community fees, and local taxes. Community fees are in place to pay for gardeners, refuse disposal, access roads, lighting etc. Costs vary from development to development. I would suggest including a figure of 100€ per month in your overall budget. It may be less, it may be more. Ask.
8. Your signature. Many agents will ask you to sign a client agreement prior to viewing any properties. This is in case a property you view through them is listed by a third party (for example another agent) in which case they are likely to have to split the sales commission between them. You are the bread and butter for the agents. If you don’t buy they don’t get paid so remember that when you’re listening to the pitch.
9. Your current property. If your purchase is dependent on the sale of your current home then be careful not to sign or commit to anything until you are sure your own sale is complete. It’s not uncommon for people to sign for a new property assuming that their own property deal is complete, only to be gazumped at the last minute leaving a rather nasty double mortgage payment.
10. Payment. Are you a cash buyer or will you need a mortgage? Mortgage rates are not too favourable at the moment and getting a mortgage at all is not easy. There are some banks that are lending so shop around. Check the Euribor rate (http://www.euribor-ebf.eu) regularly as Spanish banks base their fees on this. Cash buyers will always be in  a better position to negotiate as they are not relying on anyone else for finance.

Buying a property in any country can be a long and daunting task. Be careful, be sure what you want and don’t be swayed. Look around and take your time. There are savings to be made!

Bank lending continues to tighten

Due to market factors long gone are the days when non-residents buying an independent property in Spain could expect to gain rates of 1% to 1.25% above Euribor.

With the average loan rate now 2.10% above 12 month Euribor rates are over 4% and loan to values above 60% are difficult to achieve.

Banks have however held very low margins above Euribor for their own stock and increasingly are becoming more inclined to offer up to 100% or more on a mortgage to gain a sale.

Margins from as low as 0.25% are available from Banco Popular Banks.  For buyers who are happy to focus solely on their stock this provides rates as low as 2.31% with loans up to 110%.

It would seem next year it is the Banks intentions to continue to tighten on loans provided to buyers sourcing an independent property  as they push through the system the backlog over supplied stock they hold.

For independent sellers who are trying to sell a property  they may need to rely on cash buyers only as mortgage rates increase and the banks become their main competition for buyers that do exist.

Banks do need to clear the surplus stock  but the two tier mortgage availability is being used to ensure the first pickings are theirs.

Given that cost of funds means to break even in the first few years of a mortgage the mortgages rates should be around 2% the Banks will be swapping one problem for another. This will cause lower profits over next few years from the Spanish Banks.

International Mortgage Solutions
www.international-mortgages.org