Spanish mortgages market update June 2011

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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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