Deutchse Bank Raises Mortgage Interest Rate to 1.8% Above Euribor

August 9th, 2011

Following the general trend we have seen over the past few months Deutchse bank announced today that their margins above Euribor for non-resident buyers has increased from a minimum of 1.25% above with linked products to 1.80% with linked products and as high as 2.60% above without linked products.

How long it will be before the last lender at 1.25% Sol Bank hold this margin remains to be seen but we anticipate some movement upwards in the next few weeks.

This continuing trend is in danger of dampening demand. Foreign buyers have found it increasingly difficult to borrow at home by way of release of equity against their assets there as banks in other countries withdraw product for this type of loan at the same time as Spanish Mortgages become less and less attractive on rate.

We appear to be in a cycle of catch 22; demand being dampened resulting in no growth. No growth resulting in lower credit ratings for bank and Spain itself consequence of high cost if funds meaning increases in mortgage margins to make lending cost effective.

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Santander say Spanish Mortgage Arrears Will Fall

June 21st, 2011

In a recent statement the owners of Santander the Botin’s outlined their expectation that arrears in Spain had peaked and they expected matters and prices to improve this year.

The rather optimistic view is at odds with what is happening to other banks and their view of the market.

It is difficult to see how arrears in Spain; particularly for a bank like Santander who lent predominately to the resident market; will actually drop over coming months.

Unemployment all be it predominately for the younger generation is at 21%. Most businesses particularly those in the financial sector expect to retrench rather than employ this year as mergers between Caja’s gather pace and look to list. They require cost savings to make these attractive to investors and the bulk of this will come from efficiencies and economies of scale. The firms looking to shed jobs this year will not affect those at the beginning of their careers but will affect the 40 plus in a way perhaps not seen in Spain before.

The people who will be affected by companies cost cuttings are those with mortgages and this year we will see more of these types of cuts than previous ones.

Euribor rates which hit an all time low last year and have shielded mortgagees for the last 12 months with overall rates of anything as low as 1.5% have steadily risen. This month for reviews and new loans the 12 month Euribor is 2.08%. Even if the loan was secured at a very low margin above this year most mortgagees will be hit by a minimum 1% increase in their rate. For a mortgage of 100k on a 25 year term this equates to an extra € 376 per month the household will have to find. 12 Euribor rates are expected to continue to climb so by end of year mortgage reviews we could see increases as high as 2% or more to overall rate.

Spain has no control over these rate rises so has to live with a stagnant economy and rising household costs.

Given this environment it is difficult to see the Botin’s predictions of a stabilising arrears book and improving property prices actually be realistic this year.

Most pundit would predict 2011 will continue to see arrears rising and prices in some areas continuing to fall as banks make efforts to clear the vast numbers of surplus stock.

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Spanish mortgages market update June 2011

June 16th, 2011

A Place in the Sun reports today that sales for Spanish properties in April fell to their lowest level since the crisis began. Sales were 32% down year on year and 25% lower than March this year. Whilst most agents are reporting higher sales to the non resident market the resident market is slow due to economic situation and the pulling forward of buying decisions last year to beat the removal of tax relief being applicable on the interest of loans.

Price are expected to continue to fall and it is difficult to see in some areas prices bottoming out before the end of this year or next although in some areas demand remains reasonably high.

Banks will continue to be cautious about the granting of mortgages in a declining sales and price market so we expect no relaxation of criteria or enhancement of loan to values to happen during 2011.

Clients requiring above 60% to 70% will need to focus their searches on bank owned property.

There continues to be pressure on cost of funds for the bank and last month for the first month in many borrowing from the Central Bank by Spanish Banks increased as money markets contracted for them.

The price of funds is reflected in the mortgage pricing banks are offering.

Deutsche Bank increased their margin from 1.15% this month to 1.5% above Euribor. Lloyds did the same a couple of months ago.

Many banks have now removed the ability to take a mortgage without life cover at higher rates and instead insist life cover is taken full stop. This is to ensure profitability of lending. Many banks like Sol Bank, and La Caixa now add a lump sum life cover to loan to prevent the life cover being cancelled at a later date.

Barclays and Lloyds remain the only two banks with some products where life cover is not compulsory. The Spanish Banks still lack transparency in ensuring clients understand the linked products when quoting and it is not uncommon for brokers to forget to tell clients either.

No longer can headline rates be taken as the true cost and clients should always ask the question, is life cover required, and what would be the cost. For clients age 45 years and younger, life cover premiums are reasonable, but for client 45 years and older there is a very strong argument for taking a higher rate from one of the banks that does not have life cover than a lower rate with one that does. Finding all this out at Notary on day of signing rather than being clear beforehand may make it all too late to change and could put deposits at risk.

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Spanish mortgages lender updates

May 12th, 2011

Barclays

Post the ECB base rate increase and the continuing upward trend of Euribor rates with little relief in site for the cost of the funds for Spanish Banks Barclays recently increased margins above Euribors to a minimum of 1.75% on their variable rate.

The three year fixed rate rose to 4.25% and the full term fixed to 5.95%. The three year fix still looks relatively good value for money with expectations the 12 month Euribor will rise to 3% by end of 2011. With most banks charging from at the bottom end 1.15% above Euribor to the top end of 3.9% above Euribor a 4.25% fix followed by 1.3% above 12 month Euribor at end of fixed rate remains one of the better products on the market.

Barclays affordability criteria’s makes access very difficult, with one of the lowest debt to income ratios of 30% and the current requirement that the risk teams only assess 80% not 100% of after tax income means only a handful of high earners with little or no UK debt are likely to qualify.

Maximum loan to value 65%

Santander

Santander remains currently at 50% loan to value and with the highest margins above Euribor in the market. A whopping margin of 3.9% above 12 month Euribor with low loan to value means Santander have by default extracted themselves from the lending market for non residents in Spain

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Finally some good news for Spanish Banks!

May 11th, 2011

Finally some good news for Spanish Banks!

Yesterday it was announced the recently announced (Forbes Magazine)  richest man in the world Carlos Slim has bought into La Caixa.

La Caixa should be one of the first savings bank to fully list and this endorsement will undoubtedly help the listing process and encourage other investor to buy the banks shares.

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The Perils of Currency Mortgages When Taking a Loan in Spain

May 3rd, 2011

Whilst on the face of it low interest currency mortgages can seem attractive the reality can be quite different.

Lenders like Banco de Valencia regularly promoted their currency mortgages to Spanish Buyers as an alternative to taking a Euro loan. During the years of 2007 to 2010 when Euribor rates were climbing and loan rates hit their height of over 5% many clients were convinced a Japanese Yen rate was much a much better bet.

Many of these clients have now found they have a loan that is in size considerably more than the loan they first took out due to the exchange rate fluctuations. The loan is always in Euros and converted to Yen at completion and converted back to Euros from Yen if the loan is cleared early.

Because the Yen has strengthened against the Euro anyone wishing to clear the loan would have less Euros coming back when the conversion was done and therefore left with outstanding amount on the loan despite having a loan that has been paid up to date for the entire time it has been held. Any benefit on rate has been completely wiped out. Clients therefore are tied into the loan and victims of exchange rate fluctuations requiring a reversal of the trend to reduce the capital outstanding on either sale or early repayment.

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Property Auctions In Spain

May 3rd, 2011

Whilst many companies advertise the buying of property in Spain via auctions none of these web based advertisements are actually official auctions where Spanish repossessed property can be bought.

The official auction process in Spain is a very different process to those being touted on the web.

When a property is going through a repossession process the final part of this process; before the bank can take ownership; is that the official court auction takes place. This auction is only advertised on the Court Boards of the relevant and local court to the property.

Each Spanish property has on its deeds an auctionable amount recorded when the loan was originally granted. At court auction the property cannot be sold for lower than 70% of this defined amount. Bidders must put into court 30% of the current value of the property or they will not be able to attend.

If the property is not sold at auction then the bank takes ownership at 50% of the auctionable value and must pay transfer taxes etc relevant to this amount. The 50% value is then deducted from the amount owing to either pay off fully the outstanding Spanish mortgage or leave an amount outstanding that the mortgagee will be pursued for.

The Spanish Bank has 21 days before taking over property to find a buyer who will then buy direct from the courts. At this point the bank can agree to sell the property at any amount they wish but cannot if they choose to sell at a lower price pursue the original owner for any more money than was crystallized at day of Court Auction.

The Spanish Auctions advertised on the web are in fact private auctions where direct sellers can chose to advertise their property and try to sell it by a bidding process in comparison to perhaps using an Estate Agent or other marketing avenues. They are not however official auctions which in anyway form part of the normal repossession process in Spain and nor are they currently used by Spanish Banks to offload surplus stock.

Access to official Spanish Auctions is difficult to gain as many remain a closed shop but buying from the banks in the days in between auction and them taking full ownership is by far the timescale at which point the best price can be achieved.

Anyone genuinely believing that going to a private auction means they are getting true Spanish Bank auction stock will find this is far from the reality.

In the UK eventually bank owned stock not sold within a period of time via normal processes ends up at auction this is not the case in Spain. The auction process is the final part of the re-possession process not how the Spanish Banks sell the stock they have taken over.

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Understanding The Repossession Process In Spain and Its Consequences

April 7th, 2011

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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100% Spanish Mortgages Sotoserena Costa del Sol

March 22nd, 2011

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.

Apartments Sotoserena in Estepona

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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Repossessed property in Spain

March 18th, 2011

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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