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.

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Europe and its Institutions need to be more credible, says Montoro

Treasury Minister Cristóbal Montoro

Spain’s Minister for the Treasury and Public Administration Services, Cristóbal Montoro, said that “we must improve the credibility of Europe and its institutions”, and defended the need to step up the reform of certain European bodies in order for them to act. The minister added that the economic crisis “has been caused by a lack of budgetary and financial discipline in several countries within the eurozone that were not warned of the risk behind such borrowing, and the failure to apply discipline”.

Cristóbal Montoro said he believes there is a need “to promote reforms in Spain and in the European institutions that do not favour opportunist operations”. The Spanish political project must fit into that “reformed and integrated” European scheme “that will lead to growth. We wish to commit ourselves to stability within that Europe”, said the minister.

In his speech in the Lower House of Parliament during the debate on the budgetary expenditure ceiling for 2013, the Minister for the Treasury said that “today, we are talking about creating a competitive Spain, with no internal imbalances, that does not depend on foreign financing and all within the framework of the European Union”. Regarding the great single currency project, he said “we are talking about strengthening the euro because Europe makes no sense without its currency”. “Europe will be created with the currency or it won’t be created at all”, added Montoro.

La Moncloa reported that, according to Montoro, next year will be the last year of recession. “There is no more time left for financing inefficient public administration services”, he said. 2013 will be “a tough year of adjustments, although the fall in activity will be more moderate” than in 2012.

A budget for recovering from recession

The minister stressed that the budget for next year is solely aimed at ending the economic recession in Spain and at setting an expenditure ceiling, “which involves each and every one of the regional governments for the first time ever”, and that forms part of the structural reforms needed by Spain. “It is not a question of losing anything but rather of gaining a present, capacity and a future”, he added.

Cristóbal Montoro also highlighted in his speech that the public deficit will be corrected in order to achieve growth and create jobs. He said there is a need to stop obtaining financing from other countries, which is what has caused the economy to falter. “We need to grow on the basis of our own financing, our own savings”. To that end, he recalled that the Government is committed to correcting the public deficit while bolstering economic activity and without incurring further job losses.

The Minister acknowledged that the risks hanging over the economy are grave, and said that “we are once again holding out a hand to the political groups. We believe in consensus, we recognise the gravity of the situation. We need to agree, commit to flexibility and to dialogue”.

The expenditure ceiling

The limit on non-financial spending by the State in 2013 was set at 126.79 billion euros, an increase of 9.2% due to the effort needed to service debt that will increase by 9.11 billion euros, and the additional 6.69 billion euros that will be needed by the Social Security system.

If these items were excluded, the expenditure ceiling would drop by 6.6% to 73.26 billion euros.

Forecast non-financial revenue for the State in 2013 amounts to 124.05 billion euros and the financing of regional governments through the expenditure budget amounts to 35.31 billion euros.

Expenditure made available to ministerial departments will be reduced by 12.2% to 31.06 billion euros.

Article source: Kyero.com

They can’t always get what they want

It seems to me that whilst The Rolling Stones are getting satisfaction after 50 years of hard slog, Eurozone ministers are finding after a considerably less period of time “they can’t always get what they want” and the crisis rumbles on.

With the recently discussed bailout for Spain of around 100 billion euros and the immediately agreed 30 billion euros to help restore confidence in the Spanish banking system hopes were strong for the euro. However as we know nothing is free in life and Spain has had to reassure the EU that they can raise additional revenue so they increased VAT from 18% to 21% and of course further spending cuts are on the cards. With long term bond yields suffering in both Spain and Italy and the threat of Greece seeking new terms for their bailout confidence unfortunately in the zone is at the moment very low.

The UK cannot escape concern particularly with the LIBOR scandal still ongoing and the launch of the Funding for banks, it now remains to be seen if the banks will pass on this money to its clients and in doing so at what rate! One piece of good news for the UK however was the UK trade balance was lifted by exports and the trade deficit fell for the first time in 4 months.

The rest of the world also has many concerns, pace of growth in China and lets not forget the US where weaker global growth is starting to take its toll, watch out this week for results from many of the multi nationals, poor results could open up a can of worms.

Moneycorp - costadelsol@moneycorp.com or telephone +34 951 319 700

Commercial property sales slow in Spain

A familiar site in many Spanish towns

You can walk along any road in Marbella, Puerto Banus, San Pedro or any other town on the Costa del Sol, and see commercial units with paper covered windows or “Cerrado” scrawled on the front. Some of the coasts “polígonos” (industrial estates) are increasingly baron with many vacant buildings falling into disrepair.

This is happening for two reasons: lack of investment in new business and falling income for existing businesses.

According to data released by Savills Plc, a mere 1.25billion Euros of commercial property was sold in the first 9 months of 2011. Although that sounds like a lot it is in fact a huge 52% less than the same period in 2010. This is based on sales of offices, shopping malls, hotels, warehouses and retail outlets. The fall comes despite a 3.2% drop in average rental costs. In 2008 office rental prices peaked at 41€ per square meter, 33% higher than the current average or 27.5€ per square meter.

Commercial investment has dropped to it’s lowest level since 2001 due to the economic crisis spreading throughout Europe. Investors are staying away from Spain until the government has created a clear plan to deal with the growing sovereign debt problems. This may now take longer than expected as the current governing party, Jose Luis Zapatero’s Socialist party is not expected to remain in power following elections due in November. Analysts predict the Popular Party are likely to win and if this is the case the new government will have to start the whole process again.

Tighter lending controls have also been a factor in keeping the investors away. Banks have made it harder and more expensive to get financing following a large rise in the number of “bad loans”. During the boom of the late 90′s and early noughties it became increasingly easy to get finance for your property with interest only and 100% finance deals readily available. Many of those loans have defaulted resulting in the banks costs increasing. Many banks have a huge number of repossessed properties on their books.

Many planned investments and new developments have been postponed or cancelled due to a lack of financing and continuing uncertainty surrounding Spain’s economic outlook.

A poll of 600 real estate investors conducted by CBRE Group Inc. revealed that 73 percent thought the outlook for Spanish real estate would improve in 18 months. Patricio Palomar, head of research at CBRE in Spain said that was not good news adding “They are saying they see no improvement in the short term.”