Anti-Brexit Spanish Mortgage Strategy

If you are being put off buying a Spanish property because of the drop in the value of the pound you need to read our Anti-Brexit Spanish Mortgage Strategy carefully.

You may feel that property prices in Spain will be affected by fewer British buyers coming into the market although it is important to bear in mind that there are still many nationalities eager to purchase here and in particular French, Belgians, Germans, Scandinavian, Eastern European / Russian and Middle Eastern clients. We even have buyers from Australia, New Zealand, North America / Canada & South Americas getting involved in the Spanish property market.

This means that prices are still, in our opinion, on an upward trend and there seems to be no evidence that this is going to change anytime soon. We see prices still increasing in Spain.

As the value of sterling has dropped by 18% against the Euro since the Brexit referendum on the 23rd June 2016 we thought it would be a good idea to try and explain how using a Spanish mortgage to purchase a property in Spain or any other EURO denominated property can be a very good idea.

The rate of exchange on the 22nd of June 2016 was around the 1.31 mark and as of today (23rd October 2017), we see sterling has dropped to 1.11.

We speak to many real estate agents that specialise in selling to British based buyers of Spanish property and the feedback we get is that the drop in sterling is not really having an effect on the amount of enquires they are receiving but it is having an effect on the amount of their clients actually taking the plunge and purchasing the property of their dreams in Spain.

At Fluent Finance Abroad we constantly keep an eye on how our market is changing and study ways in which we can use the tools at our disposal to give our clients an advantage given the state of market conditions at any given time.

Hence we are now finding that savvy British buyers are not being put off buying property in Spain as they are taking advantage of the availablility of non residents Spanish mortgage lending to facilitate and hedge against the low sterling value and buying a property using a Spanish mortgage.

How the Anti-Brexit Spanish Mortgage Strategy Works.

Mortgages in Spain are expensive to put in place. However even allowing for the cost of setting the mortgage up, in the long term clients will potentially greatly win out by taking a Spanish mortgage now whilest the exchange rate is so low.

If we take the example of a client, who is going to purchase a property for 300,000€. If they buy in cash with all taxes and fees added to the price, they will pay a total of approximately 337,500€ for the property. At todays exchange rate of 1.11 the client would need to transfer £304,054 to purchase the property in cash.

Assuming the client took a maximum 70% Spanish mortgage on the property, the amount they would need to pay  for the property would increase to 345’000€ to cover the extra bank fees or £ 310,810 @ 1.11.

A 70% mortgage would be 210,000€ (This reduces the amount they need to transfer by £189,189 @1.11 to the £, meaning they need to transfer a total of £121,621 instead of the full £310,810 at this stage in the buying process).

Once Brexit has completed (or cancelled depending who whose opinion you agree with) and things have settled back to a degree of normality in 2-3 years time the exchange rate should recover to around the pre Brexit rate of 1.31 to the £. At this point the client would need to transfer an amount of £160,305 to clear the mortgage completely.

This makes no allowance for the amount the client would have paid off the mortgage during the time they had it. Even taking into account the extra 7,500€ paid in Spanish mortgage set up fees the client has still managed to save themselves  £28,884 on the price of their property by taking advantage of the poor exchange rate.

It is important to point out that one of the main advantages of a Spanish mortgage is its flexibility when it comes to making early redemption payments of the loan amount either partially or in full. The fees to reduce the mortgage or to cancel the entire mortgage are very small and so you will have a great deal of flexibility to reduce the mortgage when the exchange rate goes in your favour. For example if you reduced your Spanish mortgage by €10,000 in the first five years, the charge would be €50 and after five years this is reduced again down to €25 for every €10.000 you reduce the mortgage amount by.

We are a long-established firm of independent mortgage brokers based locally in Spain and we have agreements with all of the major lenders. If you would like to discuss the Spanish mortgage market with us, we would be delighted to have a meeting or a telephone call to inform you of all of your finance options and to tailor an offer specific to your needs.

We look forward to hearing from you.

Contact us today.

British Banks and mortgages in Spain

British BanksHaving been arranging mortgages in Spain for over 13 years I feel like we at Fluent Finance Abroad, are well placed to inform you of how British Banks faired when it came to lending in Spain.

When I arrived in Spain back in January 2004 I walked into a frenzy of Spanish mortgage lending activity.

It seemed that there were hundreds of lenders all competing for the flurry of consumers from Spain and other parts of the world that fancied a flutter on investing in the Spanish property market.

Not only were Spanish lenders open for business, but there were a huge amount of foreign banks obtaining lending licences so that they could dish out cash on Spanish shores.

Who were the main players that were involved in lending in the Spanish property boom?

Well we had lenders from countries like Denmark, Holland, Norway, Sweden, Switzerland but the most prolific were the British banks.

For years UK banks were a high street presence in Spain and it was a common sight, especially in coastal areas to see Halifax Spain, Barclays Spain, Lloyds International Spain, Abbey National.

We also had lenders pass-porting in from Gibraltar of course, these included the likes of RBS / Nat West, Leeds Building Society or Norwich & Peterborough and they all seemed to be enjoying capturing a huge amount of new business and their respective head offices were keen to keep this going.

Why were British lenders so popular in Spain?

There are 3 main reasons;

  1. They were attractive to the biggest buyers of Spanish property which were buyers from the British Isles.
  2. They understood the income verification paperwork which would be presented by British clients, especially the self-employed British entrepreneur or property landlord.
  3. All British banks offered the holy grail of interest only Spanish mortgages that the Spanish banks were not prepared to offer.

All the reasons above seem reasonable at the time but then came the credit crisis.

Spain was hit extremely hard when credit markets dried up, but not only were Spanish bank hurt when the crisis hit.

British banks were equally affected, we all remember Northern Rock & Bradford & Bingley having to be turned into the bad bank of the UK.

British banks suffered so badly in the crisis they packed up their bags and left Spain pretty quickly and refused to lend anymore although they had huge toxic mortgage books which needed to be sorted out and cleared off their balance sheets.

Halifax Spain was sold to Lloyds and then Lloyds International then sold themselves to Banco Sabadell who now own TSB which split from Lloyds a couple of years back.

What’s the problem British lender face now?

This is a simple question to answer.

As most of the Spanish mortgages UK banks gave out were done on an interest only basis, the debt has not reduced down over the years.

The issue is that Spanish properties have reduced in value by as much as 70% in some areas and therefore many UK borrowers in Spain are now left with massive negative equity against their Spanish property.

The Interest only term do not go on for ever meaning that UK banks can now start calling in the debt.

This means that even if the owners sell their properties, they still have massive debts still to pay back to the bank which most borrowers are unable or unwilling to do.

Don’t despair, you must realise that this is as much of an issue for the British lending institution as well as it is for you, there are many reasons for this but a main one is that it can be a long and costly process to take legal action against a Spanish mortgage non payer.

The banks that are affected by negative equity issues in Spain are Banco Sabadell, Lloyds International, Halifax Hispania, Leeds Building Society Spain, Norwich & Peterborough, Nat West RBS Spain & Gibraltar & Jyske Bank.

If you have a mortgage in Spain that is in negative equity you do need to speak to a Spanish mortgage expert at Fluent Finance Abroad, we are able to guide you and help you give the property back to the bank, using current Spanish mortgage law, and leave the debt being 100% covered by the asset in question.

If you use current mortgage law in Spain, you are able to repay the whole debt, including community fees and property taxes by giving back the property.

You do need to know the law and therefore Fluent Finance Abroad Mortgage Brokers are best placed to assist.

Case Study:

Mr. JM bought in 2007 in Duquesa with a 100% mortgage from Halifax Spain for 275.000 € on an interest only basis, the debt never reduced and today the property was valued at 120.000 € meaning the client had a 155.000 € shortfall.

His bank, now Sabadell, informed him that his interest only payment of 500 € per month was ending and that his payments were rising to 2300 € per month which the client could not afford to do.

He approached us and we successfully managed to give the property back to the bank, witnessed by a Spanish notary issuing a certificate of full payment, meaning the client walked away from a serious debt in Spain.

The client had a number of property assets with equity in them so the fact that he has a legal document stating that he didn’t have a debt in Spain means that he and his family can sleep well at night knowing that the Spanish lender will not seek repayment via the county court system in the UK or Ireland.

If you have any questions please get in touch with us and speak to one of our a Spanish mortgage experts who can advise you and can help in many ways.