ITV 1’s Paradise Lost – Good Mortgage Advice Would Have Helped

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This weeks Spain “Paradise Lost” programme on ITV 1 was an overview of the market in Spain both now and in the preceeding years.

It is difficult when watching a programme like this not feel sorry for some of the individuals involved but for all those involved the issues need never have happened with correct advice. It would have been very helpful if the documentary had outlined on each case study what the actual steps should have been taken and what can be done by buyers wanting to buy in Spain to ensure they do not find themselves in the same situation.

The buyers who bought at La Zenia Elite made a number of errors or were badly advised by their legal advisers. Protection against exactly what happened to them is in place in Spain and is robust and legal. Failure to follow simple rules are what caused the outcome they have. If you are buying off plan in Spain by law the developer must have a bank guarantee. The bank guarantee, guarantees the deposits of the buyers should the developer fail to complete build or go bust. Each development should be able to produce a bank guarantee certificate which clearly stipulates; the terms of the bank guarantee; when it can be invoked and under what circumstances. It will also outline what interest rate compensation would be payable on funds tied up as deposits. If this certificate is not available, visible and terms not understood then deposits should not be passed. If the certificate is in place, is understandable and it’s terms are acceptable then deposits can be safely passed as a bank is underwriting the cash.

Secondly, a development is only complete when the whole development or that phase has what is called a habitation licence. This licence is another legal obligation and is confirmation that all works as per the licences originally granted have been finished and that the property meets the legal standards required. Without this licence it will not be possible to get direct mains water, electricity etc connected to individual properties so anybody moving in before it has been issued will rely on developers utilities. The habitation licence may take some weeks to be granted and people do get talked into completing before the certificate is issued by Town Hall. Passing over full funds and completing at Notary before it is issued is one of the most common mistakes made and under no circumstances should a buyer do so.

Legally they cannot be forced to complete whatever pressure they are put under by the developer or seller without this document. Legally the document confirms all works are completed to the standard required. Without this licence at any time the property could be deemed as built illegally, not meeting the original plans that permissions were granted under and getting utilities connected may be impossible. With it you are safe.

The same applies to re-sales if it does not have an actual certificate available even on older properties take great care and ensure property is not only registered locally but forms part of the Junta’s and national current 5 year urbanised plan known as the PGOU. All buyers should read the small print on any marketing material as all developments only require the developer to finish and complete the buildings for living no contract ever requires the developer to complete any additional infrastructure including club houses, golf courses, health clubs gardens etc.

All buyers should take this account when deciding to buy as if not having the golf course would mean you would not buy don’t buy because there is no guarantee or obligation for it to be provided by law. If the golf course is a specific requirement and what makes the property appealing buy a property where the golf course is completed not in the planning stages.

It would be very helpful both for buyers and the total market if along with the headline horror stories these type of documentaries helped educate people how to take all precautionary steps they can and how to understand the actual remaining risks they may be taking. Most things in life are a risk but taking an informed risk is a completely different ball game to taking an uninformed risk.

It is not true and has never been true that banks accepted mortgage applications if you “ had a pulse and a passport”. When I started arranging mortgages in Spain some years ago it was true that the banks did less checks than now but the real issue has been the exodus of brokers from the UK seeing Spain as a good place to earn a quick buck without regulation who convinced clients to falsify papers, take loans they could not afford or use dodgy valuations to get in mortgage funds for more than the property was worth. These activities have sent the finance market in Spain for genuine buyers into turmoil making any application now very difficult to obtain. This is due to a high delinquency rate of mortgages with clients who have no embedded interest in the property in terms of their own cash and properties worth less than the mortgage amount. The banks in Spain are now so pedantic on applications that arranging a mortgage has become an unnecessarily onerous task even for quality clients.

Taking a mortgage in Spain is different to UK the whole process from application through to securitisation does not reflect the UK. Again many clients have fallen foul because they have either made big assumptions of how it will work or have been badly advised or have gone to banks direct who do not explain clearly or in English exactly how the mortgage will work in the longer term. In fact again the Spanish Mortgage market is clear, understandable and its idiosyncrasies known to any broker who is experienced and takes the time to protect the client fully. This means just like the UK the broker should take into account the legal issues surrounding buying a property, land classifications and be able to explain to the client fully the implications of any actions they are planning to take.

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