Tuesday, June 23, 2009

Spanish Tax reforms - my solution

News in the Spanish media about proposed tax reforms designed to draw more funds into the treasury to help the Spanish government´s spending requirements. Although the way it seems to be going it looks like they are going to need an increasing amount of dough to support the growing levels of unemployment. One in five of the workforce, or thereabouts, since you ask.

Nobody seems to have mentioned real estate taxes in the proposals though, which is amazing, seeing as Spain´s problems are inextricably linked to their real estate bubble.

All talk is of raising more money from taxes

Funnily enough, there must be almost no money coming in from property taxes at the moment, as nothing is selling.

So, why have them at all ?

It was a market that has over 10% cost of entry (on top of the purchase price) 7% IVA/transfer tax and 1% stamp duty.

And the taxes on mortgages and remortgages are also prohibitively expensive.

That is before we mention the ridiculous notary system

And for selling and buying another property you had to pay the costs again on your new place

This was a rubbish expensive system that worked for a number of years in a rising market

Well I am sorry to say that the market has gone - probably for good

So, get rid of the taxes, as there is no money coming in now anyway

What will this do and how will it help ?

Well, it will mean that a 70% mortgage will mean you need about 33% of deposit instead of 43%

And if clients can freely remortgage to better deal, they can save money, spend more in the economy, and create a bit more competition with the Spanish banks

The Spanish banks will have less clients defaulting, and some more of the empty stock that they are holding may begin to be sold as all of a sudden it is another 10% cheaper, without any fall in the market price

People that may have been interested in buying, can now maybe afford a property more easily, as they had to pay that 10% costs anyway

So the market might move again, property would sell, people could remortgage, more money swilling around the economy and able to be spent on goods and services that do atteact collectable taxes

And less people would be unemployed so the governement would save some money on handing out benefits to out-of-work construction workers etc, because many of them would have some work finishing off projects and working on people´s properties that have been able to move etc or remortgage to renovate or extend

Do I think that the Spanish Government, having made a fortune from real estate taxes will do this ?

No. Of course they won´t.

Almost the final nail

A product update today from the Leeds Building Society, one of the lenders that has remained the most reliable in Spain throughout the credit crunch

Now it seems they have finally capitulated, and to a degree that is more pronounced than their rivals in Spain

The key changes are that:-

They will no longer offer interest-only mortgages in Spain

Maximum LTV´s for apartments will now be 50% (down from 65%)

Maximum age at the end of the term will now be 65, unless the clients can demonstrate affordability beyond this age

Income multiples have dropped, making it more difficult to qualify for the loans

This is grave news for clients with mortgages in Spain that were hoping to change to an interest-only loan.

Our clients in the past 9 months or so have almost exclusively been for remortgages, as people seek to lower their outgoings by paying interest-only on their holiday homes

Leeds were offering the highest % LTV in Spain for switching to interest only, and combined with falling valuations that will have scuppered lots of clients plans

The Leeds is a business of course and they have to look at the risks and protect their own interests. But how do we get out of the recession and get markets moving again when more people are stuck with higher rate repayment loans

How indeed are they hoping to sell any property in Spain when 50-60% seems to again have become the normal lending levels

It´s another move in the wrong direction just when we were hoping and needing some signs that things were settling down, and indeed some reports have started to filter into the media about the famous "green-shoots" of recovery

Thanks for reading

Thursday, June 18, 2009

Spanish banks downgraded

At last the Spanish banks have all been hit by Moody's, and all had their rating's downgraded - well, 30 of them have.

All I can say is, I'm surprised it has taken this long

I have been saying for years that the flabby system of too many branches, staffed and with hardly any customers, living off the fat of the property boom, has been a growing problem.

Take La Cala de Mijas in Malaga. It's a pretty small place, yet it is stuffed with bank branches. At one point they had 2 Solbanks and an Atlantico - in the same group.

All the managers I dealt with just didn't see that there are too many banks and too many branches

Now there is going to have to be some serious bloodshed as mergers and takeovers will happen, and hundreds of branches will have to close

There needs to be serious reform in terms of the way the banks operate, the red tape, the stupid taxes, the ridiculous mortgage expenses etc etc etc

Spain has always seemed to be some years behind the US and UK. Now it is danger of regressing further

Thanks for reading

Spanish bank discrimination

So here's the deal :-

Spanish banks, having overlent in the past, have ended up with a shed load of property on their books

Partly it has to be said, due to the completely stupid way that mortgages work in Spain, so there is very little flexibilty when it comes to refinancing or trying to modify loan conditions

And they also have a huge stock of property from busted developers, that the banks had been happy to lend millions to in the past

So, they won't play ball if you want to change your loan or remortgage

Valuations are falling faster than Ronaldo when the wind blows

And we are lucky to get 60% loans against these dropping valuations

So, what are they doing with all their stock ?

Simple, offering the units with up to 100% finance at favourable terms

So they can shift their stock, whilst the rest of the market continues to flounder

How can anyone else be expected to buy a property from a private vendor, or a developer, when you can buy a cheaper unit, with better financing, direct from the bank ?


Thanks for reading - send us an enquiry and we'll try and get you a worse deal than the banks will if you buy from them..........................

Friday, June 12, 2009

You have got to be kidding me

Spanish banks don't like property that is in any sort of rental program

Because they think they will have trouble repossessing it if there is a 12-month contract for rentals etc

Even though the repossession process in Spain is glacier like in speed terms

So we have a client that has a €220k property that will go into a 20 year 5% rental program

The bank are valuing it at €110k

Yes, half the price

And they will give him a mortgage of 70%

€77,000 mortgage on a property that cost about €235k after taxes

Thats about a 33% mortgage

Some risk - the income is going to be way more than this

Stupid, stupid stupid, and very expensive for our client. Like it's his fault the banks are all screwed...............

Is mortgage broking broken?

Clever play on words, yeah?
Actually, things are looking pretty bad in the Spanish mortgage market at the moment, certainly from the point of view of a mortgage broker.
Why ?
Well, there seems to be continued downward pressure on valuations carried out by the Spanish banks for mortgage purposes.
That is to be expected at the moment I suppose, given that there are so many empty properties in Spain, and the market has virtually disappeared.
But when it is combined with reductions in LTV offered by the lenders, it starts to make it virtually impossible for most clients to remortgage.
The best LTV's we are getting at the moment are 60-65%.
When these two factors are combined, you can have a property at 80% of it's original purchase price, and a bank offering 60% of this.
So, you can get a property with €100.000 purchase price, and the best remortgage is €48.000

Not many people bought property with 48% mortgages in recent years

So unless we get a miracle in terms of valuations or a pickup in the property market ( which seems unlikely) I don't know what we are going to do.
The banks will need to start lending 85% of the lower valuations for it to work
But why would they lend if prices are falling further
It's a bit catch-22 and could remain in a downward spiral for a while.........

Thanks for reading