Like Dinosaurs, 100% mortgages in Spain are endangered of extinction… Scientist and teachers said that dinosaurs were awesome creatures, running wild and in control of the entire world, until a meteor hit the earth and change the course of history and produced their extinction. That was, according to mythology, the cause of its extinction.
As with dinosaur, the excesses of the housing bubble created the 100% mortgage in Spain, but as the real estate market is turning quickly, soon the 100% mortgages in Spain, will also be something of the past… Some Spanish banks still use the slogan 100% mortgages to attract clients but very few ever get 100% financing and if they do it under harsh conditions or even “cheating”.
The slogan used by the bank to attract potential mortgaged is to provide 100% financing to buy a house, something that during the housing boom was common. During the bubble burst it was a very normal practice. And now give more than 80% of the appraised value is not so rare even you have to read the fine print.
According to the Bank of Spain, at the end of March all new mortgages granted, 15.3% were given by more than 80% of the appraised value of the house, ie were at high risk. To put this figure in context, the figure is far from the 18% who came to assume the subprime mortgages during the peak of the bubble, in June 2006.
And the bank now wants to avoid giving more than 80% of funding for basically two reasons:
1) Because in case of default by the mortgaged, the bank may lose money due to the possible loss of value of housing, the cost of selling it and the potential costs and taxes to assume, as the law requires the new owner to take them even several previous years if they are unpaid. “All these expenses can assume that 20% difference there is between 80% and 100% financing.”
2) The other reason is that the Bank of Spain, to deter banks, which has done is force them to be provisioned more formalized mortgages if more than 80% of the appraised value by considered “high risk”. This is provided in the circular 4/2004 on rules for public and confidential financial information and financial statement formats, a circular has since been revised several times.
And why these mortgages are considered high risk? Basically, because they are on residential property which, if much lower value, the mortgaged risk of entering a situation of negative equity (as it is known in English), ie the value of the mortgage debt exceeds the value of housing in the market.
If the customer should not have the remaining 20% up to 100% (to which must be added an additional 10-13% to cover taxes and expenses of formalization), we points out several scenarios:
Most banks seek double protection: the loan does not exceed 80% of its market value (appraised value), and turn the buyer “involves” providing enough savings to not finance more than 80 % shopping. Considering taxes and expenses, which represent, as we have said, an additional 10-13%, means that the buyer has to contribute from his pocket a 30-33% of the purchase price of the home. That is, they finance 80% of the lower of the two values: purchase or appraisal.
The few banks that give more than 80% of the purchase price make it limited to a maximum of 80% of the market value (pricing). An example: if we want to buy a house whose appraised value is 100,000 euros, but negotiate with the seller to set the purchase price at 80,000 euros, the bank could finance us 100% of the purchase price (100.000 € x 80% = 80,000 €). That said, that banks never exceed 100% of purchase, ie 10-13% of the costs should always provide the buyer, and even some of these banks are reviewing this policy to not exceed 90-95% of the price shopping.
There are also some banks that are more flexible and can give more than 80% of the appraised value and purchase price of the house, but only for some profiles with very stable income as officials or people with many years in a large company and with a good position. In this case also they reach 100%.
If you buy a property from a bank: applying the rule discussed above, value the property for more than the purchase, so that 80% of that assessment covers 100% of the purchase price amount. This practice, common at the beginning of the crisis by the need for banks to dispose of their property portfolio, has been drastically reduced by the supervision of the Bank of Spain, and the realization by the banks to give new customer financing creditworthy is to repeat past mistake.
The last alternative is the double guarantee. There are banks that provide up to 100% plus, as long as a free additional housing contribution charges and is owned requesting the mortgage. Thus, they do not involve the guarantor, a very controversial figure after the bubble burst.
In the UK itself there are 100% mortgages
Although it is a practice that ceased to apply after the housing bubble in the UK, Barclays in Spain has begun to give mortgage loans for 100% (or even more) of the appraised value…
So, If you are searching for properties with 100% mortgages, do not take too long, as the good opportunities are running out on a daily basis. in the other hand, if you would like to buy your luxury property in Marbella and the Costa del Sol before prices get too expensive, please do not hesitate to fill the form on Contact Us or give us a call on +34 952 811 010 Today!<< British Property Investors set for a Refund from Spanish Banks