Friday, June 12, 2009

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

No comments: