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Spanish Mortgage Costs Supreme Court Ruling – Lender Pays.

Good news for people buying Spanish Property with a Spanish Mortgage: Spanish Mortgage Costs Supreme Court Ruling – Lender Pays.

Spanish Mortgage Cheaper

In the past, buying a Spanish property by taking out a mortgage added up to 4% on the Property Purchase Price. This pushed the costs on top of the net property price to as high as 15%. Much of this happened because the mortgage lender forced you to assume the costs of the mortgage. Incidentally, this was a cost you could not claim against or offset as costs against income when you submitted your tax return because you were not the benefactor of the arrangement.

Spanish Legal System Defends Consumer

The Spanish Legal System should be applauded for its support of the ordinary consumer in this way and let’s hope it leads to renewed confidence in the property sector within Spain. Once more, the conclusion is that, with property prices still subdued, it is a Buyer’s Market and there has never been a better time to dip your toe’s in the market. This applies if you seek to take out a mortgage or pay for the property outright.

[Sentencia TS 705/2015]

The Supreme Court has analysed contractual terms between banks and consumer and adjudged them to be Unfair Contract Terms. As a result, all costs attributed by the bank to the consumer in which it is the bank who is the passive subject and could, in theory, deduct such costs from tax returns, must be borne by the bank.

Obiter Dictum

The Obiter Dictum of the decision looked at costs derived as a by-product of contracting the mortgage. This refers to Notarial, Land Registry (notifying the Charge against the Property  on behalf of the Mortgage Lender), Transmission Tax, Stamp Duty for documents drafted in the Notary and other costs stemming from the mortgage – including Mortgage Indemnity Protection.

The judgment is available here, (in Spanish only):

Minutes of the Decision here, (in Spanish only):

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A couple and a house under a Spanish Sunset

Property Prices Rise 5.7% in 2016 – Britons Lead the Way

Property Prices rise – now is the time to buy.

  • House Buying was up 13.9% in 2016 compared to 2015
  • A quarterly increase of 1.9% in the IPVVR (Case & Shiller Methodology of the price of housing applied to Spain)

    Property Sales

  • 93,423 operations as property prices rise
  • 11.2% more than in the same quarter of 2015
  • The best result of a fourth quarter of the last seven years.
  • The year 2016 has broken the 400,000 registered sales barrier with 403,743
  • Best year-on-year figure since mid-2011, with an annual increase of 13.9%. However, behaviour remained distinct with resales increasing to 18.5% while new housing showed a decrease of 3.2%.

Property Purchases by Foreigners

  • Ex-pats and second home owners find the bargains – unphased by BREXIT.

Brits Top New Owners Figures

The fourth quarter of the year shows the highest percentage of foreign purchases in 2016, with 13.6% of home purchases.
13.3% of purchases were made by non Spaniards, around 53,000 operations, of which the British led the way.

Mortgage Patterns and Stats

  • The average mortgage debt for 2016 was € 111,656, a year-on-year increase of 2%.
  • Fixed interest rates were up by 31% in respect to new mortgage loans, a new historic high.
  • As property prices rise there is growing availability of Mortgages
  • Average mortgage loan in the fourth quarter was 524.7 euros.
    1.7% lower than the previous quarter, while the percentage of salary it cost to pay the mortgage went down 0.45 percentage points to 28.3%.
  • Year-on-year results marked new historic lows (over the last fourteen years), with € 522.6 million and 27.5%. With respect to 2015, it represents a decrease of 2.7% in the mortgage rate and -0.88 pp. with respect to wage cost.

It’s a great time to buy.

Note: The complete report can be accessed (in Spanish) at the following link:  Spanish Land Registry.

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More than One Way to Buy & Sell Property

In Velázquez Street, Madrid, a property has just sold for 807,500 euros. This is a 15% discount on the market price, but it was done with a special purpose. The sellers, a 78 year old husband and his wife of 75, get to continue living in their home, remaining as tenants for 10 years paying a monthly rent of 2,500 euros. They also have the option to call on the equity to pay the rent up front. This equity release would deduct a further 120,000 euros off the final price, making it 687,500 euros. There are advantages to a prospective buyer; a discounted property in the city centre with a guaranteed rent. These ‘sale & lease back’ schemes are not new. In fact, in recent years they have been the lifeline of companies, institutions and banks to attain liquidity.

Now the market is expanding into the domestic arena. The majority of investors attracted to such a scheme do so with an eye on the medium term market. They tend to sell the house on the death of the tenants. It is a formula that is beginning to attract ‘buy to rent’ purchasers. They can leverage their mortgage application with the guarantee of tenants and a rental income from the beginning. So explains Nacho Espejo, commercial director of Kategora. This Bilbao firm specialises in the management of real estate assets and aims to expand to Madrid and Barcelona next year.

This particular rent-back venture is aimed at the retired property owner looking to sell and takes into account the age and needs of the would be tenant, since the leases are usually made for a period ranging from between 10 and 20 years. However, the tenant can terminate the contract at any time.

What’s in it for the purchaser?

The buyer benefits from discounts of between 15% and 20% on the market value, explained Carlos A. Martinez Cerezo, managing director of the company, Retiro. And in some cases this can reach 50%, says Jacobo Armero, associate agent at Re / Max Clásico. After revaluation of the property there’s a gross return of between 4.73% and 4.75% per annum (after deducting ordinary and extraordinary fees, IBI and home insurance). This figure is slightly higher than the national average. According to the Bank of Spain, this compares to 4.6% in the fourth quarter of 2015 and movement is dependent on the given city. Bilbao is between 2% and 3%.

The homes that attract this sort of investor typically have an average value of 400,000 euros and are located in the most attractive areas of the cities. When dealing with fixed amounts, there are creative alternatives that can be introduced, such as reducing the purchase price even further in exchange for rent in advance. This helps liquidity by making the asking price even lower compared to comparative housing on the market.

What’s in it for the Seller?

Assuming the seller is over 65, there are also advantages. They get an injection of liquidity to meet their care needs and this lump sum is exempt from personal income tax. Plus, they get to remain in their homes for a set period of time and can contract for that to be a life interest. More than 80% of Spaniards express a wish to be cared for at home when they are older.

Excerpt taken and translated from El Pais



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Sun shining on Spanish property market again

Now  is the time to add to your portfolio. Don’t take our word for it. The  Daily Telegraph article says it all.

IMF hailed Spain’s remarkable economic rebound and overseas property buyers, particularly from the UK, are returning.

Spain GDP forecast to reach 2.5 per cent in 2016, outperforming the UK and Germany

Spain gives you a great deal. The OECD research, which has been running for over a decade, plots local prices against typical wages and then sets this against the long-term average. It concludes Spain is currently a good investment prospect. This is borne out by the EuroStat House Price Index which shows Spain at 75.29 versus Britain’s 125.9 (Anything under 100 is exceptional value, over 100 overpriced).

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