Property price cuts have replaced the “Mad Mortgages” in Spain as the last Spanish bank involved decided the real estate market is now strong enough to recover without the ultimate sales booster of a nominal amount down and get your buying costs paid.
It follows three years of deals where brand-new, key ready villas and apartments repossessed from developers who defaulted on their development loans could be snapped up for €3,000 and nothing more to pay to get the keys. An all-time low Euribor base rate meant buyers were paying around 2% on their 110 percent LTV loans, in some cases the equivalent of a week’s rental income.
Now, after a gradually pull-out, that started with the high flying Costa del Sol, Banco Popular has closed its books on 110% mortgages and replaced them with stricter scrutiny of borrowers’ incomes, price reductions and a maximum of 80% mortgages. There will also be free furnishing packs with some promotions.
Counting the cost of 110 percent “Mad mortgages”
Many pundits have been critical of the 100%-plus mortgages in Spain, claiming it was mad to encouraged casual purchase and distort the real estate market as it recovered. Critics said that putting the full cost of the property and 10% of the taxes and buying costs on a mortgage:
- Increased repayments typically by 30%
- Increased the need for a strong rental stream
- Increased the possibility of a mortgage default
- Increased acquisition costs by tens of thousands of euros
Buy to let investors were the main recipients of the 110% mortgages, while lifestyle buyers are happy to take advantage of peak to present price discounts averaging 44% and invest their savings or cash windfall to pay a deposit of 20%-40%. They anticipate some equity increase in the medium term and a useful rental stream when the villa or apartment is not being used by the family.
The current best deals are in Fuerteventura, Canary Islands and the Costa del Sol where new, key ready places are discounted by 60%-plus with prices starting from €77,000 for 3-bed properties.
The end of the “Mad Mortgages” was welcomed by Walker Property Spain, the international broker for four leading Spanish banks, offering huge discounts on new property repossessed from developers and generous mortgages to encourage sales.
Said Ben Walker: “They helped the Spanish real estate market recover after the dreadful recessional years, but in the last six months sales with deposits have exceeded the 110% deposit deals. That’s a positive sign of the current strength of the market.
“There are still heavily discounted villas and apartments in all second home areas of Spain. We have just sold the last five apartments of 20 that were discounted by 82%. Our buyers snapped-up apartments that the original developer sold for €1M-plus for an average of €200,000. We now have a waitlist for more of over 50 people who hesitated and lost out.”
Author: Kevin Barnett, international property writer 13 May 2014