Spain’s property market is stressed! Those who bought right at the peak of the boom in underlying prices in Spain are suffering from rising mortgage costs and reduced levels of rental income, and as a result of the negative situation that is brewing we thought we’d better talk to you today about Spanish property mortgage arrears and repossessions.
The peak of the boom for property prices in Spain in 2006 coincided pretty much with a peak in UK house prices, a peak in levels of interest among would-be British buyers of international property and a peak in lending on overseas real estate. This means that there’s a very high percentage of those who bought in Spain at that point in time who are now struggling, financially speaking, to deal with their Spanish property and their mortgage commitments.
During the heady days leading up to the peak of the boom in 2006, the buy-to-let/fly-to-let frenzy was also in full swing and there was a great deal of peer pressure in the UK where those who had already bought properties abroad and were apparently reaping financial dividends in the form of rental income and capital gains as a result were seen as successful, and those yet to get on the bandwagon were not! This compounded the pressure and led to many finally venturing forth and taking out 100+% mortgages on properties in Spain.
Spain was a favourite choice because of the accessibility of the nation, the overall popularity of the country with Britons and because there were a large number of British and Spanish lenders all willing to offer euro mortgages secured on a Spanish home. At the time, euro interest rates were favourable, the exchange rate between the pound and the euro was attractive and property prices were rising in the UK anyway so everyone felt fairly affluent.
And then all of a sudden everything changed. There were a series of shocks and after-shocks that hit the Spanish property market, there was a fallout in the UK from the US economic woes, there was a growing gulf between the buying power of the pound and the buying power of the now mighty euro, and then euro interest rates began to creep up on mortgages.
Adding to this gloomy situation was a slowly dawning realisation that many developers had oversold the potential rental income a property buyer could get on their Spanish property and suddenly, everything began crashing down around the ears of a large number of Britons with properties in Spain.
If you are finding yourself in the situation today where the cost of your Spanish mortgage has gone up as the exchange rate situation has worsened and euro mortgage interest rates have risen, if you are finding yourself in the situation today where your rental income is not covering your mortgage in Spain and you are struggling – it’s time to talk about Spanish property mortgage arrears and repossessions.
If you are struggling do not do so in silence – for a start you really honestly are not alone. You need to speak immediately to your lender and inform them of your situation. The last thing they really want to do is repossess your property. Do not expect to be dealt with in a friendly human compassionate way – after all you are dealing with a corporate – but if you remember that to them you represent a business issue and if you can keep things on this level rather than getting emotional you will get through this.
You can suggest alternative repayment terms, you can suggest a longer repayment term, you may be fortunate and have a bank which will give you an interest only period…if you can show the bank how you are willing to try anything, from getting more tenants in to selling the property on, they will look on your case more favourably. Remember it is better to contact the lender before you start missing payments and to remain in communication with them at all times. Keep dialogue open and work with them.
As a Briton with a Spanish mortgage secured on a Spanish property do not think that you can get away with walking away from the property. Any debts you run up in the form of missed payments etc., incur interest. This all adds up and your mortgage lender can pursue you in the UK too. If you do end up in the situation where your property is repossessed and goes to auction, this can take up to two years and again, any debts incurred even from letters being sent out to you will be added to your overall mortgage debt. If, when the property is sold, the amount raised does not cover your original debt, your lender can continue to pursue you through the British legal system for all outstanding monies.
So, as you can see the most important thing is to keep all dialogue open and be honest with your lender from day one and do everything within your power to keep payments up to date.