No property recovery in Spain until banks relax lending criteria
Despite reports of foreign buyers snapping up bargain properties in Spain, the country’s real estate market will not recovery fully until banks relax their lending rules, it is claimed.
Currently the maximum loan to value for non-residents in Spain is around 60% but a buyer also needs to pay up 15% of the purchase price in taxes and fees so some considerable upfront outlay is still needed to buy a dream home in Spain.
According to Chris Mercer, director estate agents Mercers which has been established in Murcia for 30 years, unless you’re buying a bank repossession where they may lend up to 100% or more, you really need easy access to around half the money to buy a Spanish property.
‘This bars a large number of people who require larger loans. If the Spanish government really wants to give its economy a shot in the arm, the banks should relax their lending criteria,’ he said.
‘Whilst we do not want another property bubble fuelled by 100% plus loan to value mortgages for unqualified borrowers, if well qualified clients can raise finance there would be a large increase in foreign buyers entering the market,’ he explained.
He has seen the market pick up from the lows post credit crunch with the firm’s sales in Murcia up 60% in 2013 compared with 2012. Already for the first three months of 2014 sales have jumped from an average of 7.6 sales per month to 12.6, another 60% rise, but he believes these figures could easily be higher.
‘Most of our clients are cash buyers or those securing finance in their home country. With restrictive lending, Spain is shooting itself in the foot,’ said Mercer.
The latest official figures confirm that mortgage numbers in Spain have dropped for the 46th consecutive month up to February 2014. Experts believe that the country is in no danger of a full recovery, let alone a property boom, as average house prices have fallen by 30% since 2008 and mortgage lending dropped from a peak of €173 billion in 2007 to just €26 billion in 2013.
In other areas prices have fallen more. For example in Murcia it is closer to 50% since the most recent peak of the market in 2007. With national unemployment not below 25% since 2012, it’s the foreigners that Spain is relying on to keep the property market alive.
Sales to foreigners are indeed on the up, they were at a nine year high in 2013 when non-Spaniards bought €6.45 billion worth of property. Data from the Council of Notaries shows that 21.4% of all residential property sales in Spain in 2013 was to foreign buyers, that is 55,187 homes, up 9.8% on 2012.
‘But this could be much higher. Prices are still falling in some areas, and add in the strong pound versus euro and prices are even lower for foreign buyers. Relax lending and sales will soar, prices will inevitably stabilise and steadily increase,’ Mercer pointed out.
‘But there will be no general recovery in the Spanish housing market, for nationals and foreigners alike, until mortgage lending returns to normal,’ he added.
He also pointed out that it is not all bad economic news. Spain’s GDP rose at its fastest quarterly pace in six years in the first quarter of 2014. It is the latest sign that the economy is picking up steam after years of recession. Year on year Spain’s GDP increased some 0.6%, higher than expected.