At the moment, properties in Spain are affordable, presenting a wonderful opportunity for investment. Multimillionaire businessman and investor Jim Mellon (also commonly referred to as the British Warren Buffet) anticipates that over the next few months, the Euro will start to gain value against the British pound and US dollar.
However, Mellon, as well as other financial analysts in the UK, also warn would-be-property-buyers that they still need to exercise diligence and sense, in the same way if they were purchasing a property back home.
These warnings were recently highlighted in the press showing that Banco Popular of Spain has brought back the very controversial 110 per cent mortgage with their effort to offload some of the unwanted and unsold Spanish Property from their list.
These types of mortgages were offered pre 2008 in order to attract investment and Banco Popular has started marketing these mortgages again, in addition to a 15% cash back sweetener of the property’s value. The extra cash is proposed to help in covering completion and legal costs that are inherent to Spain, as well as in furnishing the new property. This mortgage rate became a very popular tool for lending almost ten years ago, bringing some financial success to investors who purchased a fully financed property, making some short term profits.
In comparison to that, most lenders in Spain require a minimum deposit of at least 30%, charging an interest rate which is about 2% above the European interbank rate or the so-called ‘Euribor’. However, the catch here is that the buyers may only select properties from a limited range of options, especially those on the bank’s books. Most of those properties are the ones repossessed during the crisis years.
According to a mortgage broker, the bank simply wants to get rid of such properties. As a matter of fact, they ended up lending them enthusiastically to developers before the year 2007, but when the financial crash hit in 2008, the developments ended up not selling at all. When the value dropped, the properties had mortgages that were higher compared to the value.
Another broker also questioned the 100% mortgages offered on the properties, going back to the question as to why the property was repossessed. The possibility may be due to cash flow problems, or due to its location, thus not attracting possible renters.
These were good points raised serving as a reminder that some areas of the Spanish Property market, especially those in the most desirable locations, are rarely a bargain, however with the current money market condition resulting in fair prices of Spanish Property, there appears to be a balance between supply and demand but obviously with the increase of the value of the Euro, these prime opportunities presenting themselves right now, wont last long.
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