Polaris World yesterday sent out marketing literature offering specific units on their developments with 90% Spanish mortgages for non-residents. As the year progresses we should see more of this type of activity as Spanish banks and developers alike try to move unsold property.
If a bank in Spain has had to take back a unit on a large development due to non-payment of mortgage, they may consider allowing the unit to be marketed with the loan level that currently is secured against it. If the original loan was secured a couple of years ago against a higher valuation the loan level; if maintained; will currently equate to much higher percentages of purchase price now than the general market would allow for a new loan.
The units may hold developer loans where the Spanish bank committed to a loan for construction. In general, banks gave 60% of purchase price to developers to construct and it is this level 60% of previous purchase price that is secured. If the developer cannot pay the mortgage and the developer cannot sell unit at full price it is in everyone’s interest to reduce price of property but maintain mortgage level and provide access to the property to those clients who want a property in Spain but have small cash deposits or investors looking for maximum gearing.
The bank is already mortgaging the property at the level of funding being offered so this is not a new loan but an existing loan being what is called “ subrogated “ to a new mortgagee.
Subrogation apart from possibly providing much higher loan to current purchase prices also has the benefit of saving the applicant having to pay mortgage deed tax. The reason for this is that this tax was paid on this loan at its inception and is not payable again. With mortgage deed, tax at 1.8% of lending this is a significant saving.
Checking before taking an independent loan whether a more cost effective loan at higher loan to values is already secured against a property is something all buyers should make sure happens. In the UK, loans sit with individuals so you can take your mortgage from one property to another. In Spain, it is completely reversed the loan sits with the property so it is possible for a buyer to take over the loan that is already in place.
Whilst there may be some benefits of subrogating an existing Spanish Mortgage, you do have to take it over on the terms currently in place this means this solution is not always suitable and that the loan may in fact be very uncompetitive. An independent overview from an experienced broker on all options is still advisable.
Banks that have funded Polaris World include the following lenders
CAM Bank
Banco Popular
Banacaja
Banco de Valencia
Tags: Polaris World, Spain, Spanish Banks, Spanish Mortgages