The repossession process in Spain differs considerably from the UK.

In the UK a bank has certain obligations to try to resolve the situation by offering counselling and agreeing short term measure to assist customers in difficulties. If all this fails the bank goes to court to obtain the right to force a sale.

The sale process has laid down guidelines that helps ensure the bank takes all steps to obtain the highest price possible which ends at auction after a certain time period of trying to sell the property directly.

The amount owed to the bank is the difference between the final price obtained and the mortgage left outstanding including all costs. The banks in UK can then pursue and individual for any amounts not covered by the sale.

In Spain the banks have no obligation to try to agree with the customer short term changes to assist them and have no appetite in general to agree to changes that might help a customer.

Agreed payment holidays for loans in arrears is not possible and will not stop any legal process.

The process of repossession is long winded and costly, these costs are added to the loan. Each loan has a penal rate written into the deed. This penal rate is applied on top of interest and capital due from the minute a loan is late or in fully in arrears. Normal Penal Rates are between 3% to 4% but can be higher and are recorded at signing in the mortgage deed.

Because the process is long winded in general Banks take action early. If a Spanish Mortgage is 3 months in arrears almost certainly the legal process will begin. The 3 months in arrears does not mean the loan has to be a full 3 months unpaid as with the UK. 3 months in arrears can mean that 1 month payment was missed and the loan has not then been brought back up to date for a period of 3 months. Even if subsequently the next month was paid in full and so on the mortgage is deemed to be in arrears.

Whilst the legal process requires the customer is notified during the time it takes to ensure this has happened costs are mounting up. At this point only full clearance of the arrears and costs will stop the process.

If the banks lawyers are unable to ensure the customer is formally notified and given a certain amount of time to clear the arrears they are required to post a notice on the board of the relevant court for that property. This notification must be in place for a full 3 months. If after that three months has passed the customer has still not contacted the lawyer or the bank to resolve the arrears the full court proceedings will go ahead.

All properties in arrears go directly to auction. On the Nota Simple of all properties with a loan it is recorded what the auctionable value is. The property cannot be sold at auction for less than 70% of the auctionable value.

If a property sells at auction the customer will owe the difference between the price achieved, outstanding mortgage, legal costs and penal interest this debt is not wiped out at sale of the property and the banks will pursue the outstanding amount.

If the property does not sell at auction the bank takes ownership of the property at 50% of the auctionable value and must pay purchase taxes etc based on this amount.

Whatever price the Bank finally sells a property at whether this is a lower amount than the 50% of auctionable value they can at this point only look to the customer in the future for the difference between 50% of the auctionable value and the final bill.

This rule also means that in the instance where the bank sells the property for more than the debt the best that happens for the customer is the bank does not pursue them for the dent that was crystallised on day of court auction. If sum above the outstanding loan is achieved the original owner will not be paid back any monies over and above the debt outstanding as is the case in the UK. This is a crucial point; many customers may believe it is better to allow the property to go to court than to sell before court action happens on basis there is enough equity in it for them to receive monies back. This will never be the case and neither technically will their debt be wiped out.

The example below shows the impact of the way outstanding debt is calculated.

Debt outstanding € 200.000

Auctionable value € 250.000

Bank cost 50% € 125.000

Customer owes € 200.000

Difference between outstanding debt minus 50% of auctionable value € 75.000

Sale price below € 125k customer owes € 75.000

Sale Price above € 125k Bank keeps all sale funds and customer still owes € 75k

Any court order in Spain is applicable across Europe where the customer originates from an EEC country. The bank in Spain can take this court order and have it implemented in a UK court and it is entirely possible that past debtors in Spain will find earning attachments linked by the courts or being forced to sell assets they hold to repay debt left in Spain.

In present climate the issues for the Spanish Banks is so vast that they will take action to recoup outstanding debts and there is an inbuilt view within the Spanish Banks that many clients stop paying because they think they can just walk away from their obligations, so have little sympathy with the debtor.

Whilst this rather sweeping view is a little unfair and many other factors like lack of ability of the Spanish Banks to communicate effectively have a big impact, desperate banks battling to survive will do whatever they have to recoup monies owed.

Under Spanish Law a debt never goes away until it is finally paid so the issue could dog many buyers of Spanish Property for years to come. Those people who took loans in Spain linked to valuations rather than purchase price and thought they we getting away with having a holiday home or investment for absolutely no cost, on basis if it went wrong they had lost nothing and in many instances took profit before it was generated may learn the hard way there is no such thing as free lunch.

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Banco Popular are currently promoting a repossessed development on the Costa del Sol in between Puerto Banus and Estepona with 100% Spanish mortgage including covering some of the normal costs of purchase.

The development which the bank took over some months ago from the developer is completed with established gardens, equipped Gym and Sauna as well as two large pools. It comprises of 1, 2 and 3 bed apartments built to a good specification all have sea views.

Of a spacious size 1 Bedroomed units average 70 mtrs sq build plus terraces with 2 beds averaging 90 mtrs sq plus terraces.

The development is situated within easy distance of beaches, golf and close to Selwo Park.

The mortgage terms are exceptionally competitive. Whilst most non residents can expect to pay on average 1.5% above 12 month Euribor the loan being given for clients buying at Sotoserena is 0.10% above Euribor.

Whilst the prices of the units is in line with market conditions for standard property rather than distressed sales based on average mortgage rate that would be paid for buying an independent property; versus the rates for Sotoserena; the saving per year on a 25 year repayment mortgage would be € 4740. Over a 5 year period this equates to a saving of  € 23.700 on mortgage payments.

The mortgage can be taken for up to 40 years and the first two years can be taken on interest only.

At current rates of TAE 1.81% monthly payments for a 2 bedroomed unit of

€ 227.000 would be

Interest Only € 343pm

Repayment 40 years € 665 pm

Further information on Sotoserena and a free mortgage viability assessment can be gained by contacting info@imsmortgages.com

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Buyers wishing to get some idea of what repossessed property bank of Spain have available should visit website www.idealista.com

There is both a Spanish and English version and many of the banks advertise their stock on the site.

This includes well known names listed below as well as smaller more regional Spanish Banks

• Sol Bank ( Solvia)
• Bankinter
• Caja Madrid
• Caja Granda
• Lloyds es
• Banesto
• Santander
• La Caixa
• BBVA

The site is easy to use for sourcing of property with a direct line then to the bank to request further information.

What is not advertised heavily is what mortgage deals a buyer might be able to expect. This will be because each property even within the same bank may have a different deal attached dependant on the level of exposure the bank has to the area or development.

Once a buyer has found a property of interest it can be a good idea to speak to a spanish mortgage broker who can talk to the bank in their language and gauge what mortgage facilities can be given.

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One of the major banks in Spain; Barclays ES; today released a new and very attractive 3-year fixed rate of 2.95% followed by a very attractive variable after fixed rate finishes of 0.35% above 12 month Euribor.

This compliments their current 5 year fixed rate of 4.20% and provides very good value for money for non resident buyers. Life cover must be taken with Barclays as compulsory; but given all banks except Lloyds are also making this conditional of a loan in Spain the product is extremely competitive.

With loan to values of up to 65%; higher than most non resident offerings; Barclays are looking to attract the more affluent holiday home buyers or permanent residence owners.

Debt to income ratios are lower than for most banks and clients must earn minimum in sterling of the equivalent of € 3.000 net per month. Only two incomes as a maximum can be assessed and the underwriting criteria’s are tough. For the right clients however Barclays are providing very competitive spanish mortgages.

To check qualification International Mortgage Solutions can be contacted on 0034 952 45 97 45 or email advice@imsmortgages.com

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When buying in Spain having a financial mortgage approval will greatly enhance your ability to negotiate on price and ensure you know your exact maximum budget, the costs you must consider and ongoing monthly commitment your purchase will entail.

Most buyers will incur costs of flying to Spain and accommodation whilst there when searching for a property. Incurring unnecessary expenditure just to find you are unsure of what your budget could be, unable to make an offer because you are unsure of what you can borrow or are unaware of buying and mortgage costs can be avoided by obtaining before looking for a property a Spanish mortgage financial approval.

A Spanish Mortgage financial approval will confirm your ability to raise the necessary funds, outline terms of the product and ensure you can be clear of exact budget. It will put you in a position to inform any seller your finances are in place making you a more attractive buyer than one who does not have finances secured.

With loans more difficult to obtain than a few years ago having a financial approval will ensure you can buy the best properties at the best possible price and move quickly to secure it.

For a written 24-hour approval in principle complete this form