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The 100% Mortgage Strategy in Spanish Property Sales

Summer is over. Signs of Spanish property market recovery in June/July with a 4% price rise seem to have vanished according to the latest figures released by the INE (National Institute of Statistics).

Yesterday, the news was that Spanish banks are giving fewer mortgages: the rate of mortgage concession has dropped by 10.8% in June 2010 compared to June 2009. In May 2010 it had already dropped by nearly 3% compared to May 2009.

From my point of view, the figures by themselves do not mean much: less mortgages means fewer transactions, which is expected in the current economic climate. Also, summer always seems to be quiet.

But there is significance to this data when you put a few facts together:

  1. We know that banks are giving fewer mortgages according to the INE figures.
  2. Banks are financing 100% of the property value. Caja Madrid, CAM and Santander finance up to 100%. Caixa Cataluña finance up to 90%.
  3. Spanish banks have an important stock of properties that they need to sell (around 100,000 units from repossessions).

And now, please pay attention to the following figures:

  • Caja Madrid sold from January to May 2010 a total 1,237 properties, which means 19%  more than in 2009 (January to December).
  • In one year (May 2009-May 2010), Caixa Cataluña has sold a total of 1,650 flats and rented out 3,750 of its properties.
  • Three big state agents (Metrovacesa, Realia and Quabit) did not sell more than 500 units altogether in Q1/2010.

So, mortgages are fewer in number, but bank transactions are getting better if we compare 2010 with 2009 and the banks’ performances with other agents.

CONCLUSION: Banks tend to finance the assets that they repossessed in order to sell them again. They support their own portfolio. Banks offer a 100% financing to encourage investors to buy a property. Obviously the buyer must be a credible client with a low risk score.

What the banks do is probably fair enough. The key question is: If they finance their own portfolio and give themselves a preferential rate, to what extent do they alter the market by using this practice?


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