Monday, November 16, 2009

Demand for goods the problem in UK

In a report from the British Chamber of Commerce, BCC, they have surveyed a number of small and medium sized firms. Lack of credit for the firms is a problem, as the banks keep tight control of the purse strings, however it is a lack of demand from consumers that is giving them real concern.
Is this evidence of a genuine drop in demand and change in spending habits (perhaps not a bad thing) or is it a function of the banks curbing consumer credit, so that people cannot spend on credit like before ?
Either way, the banks seem to hold the key.
From Spain, we hear that the Tinsa property valuations index is now showing the lowest decrease in property prices for a couple of years, showing prices only 13% down from their peak. Quite how this ties in with the demand versus supply of unsold property I am not clear, but prices can only fall so far, before sellers will just not sell. Nobody would sell for less than their mortgage outstanding anyway, and people with low or no mortgages will probably not be too worried about selling.
Thanks for reading.

Friday, November 13, 2009

Eurozone exits recession

Thanks to strong growth in Germany, and also France and now Italy out of recessions, has helped drag the entire eurozone into positive territory.

The problem is that the Eurozone is similar to the football league system, where you would have to say Germany and France are Premier league, whereas Spain have slipped to league 1 and might get relegated further.

The economies of the individual countries are so different that Germany could steam ahead, whereas Spain could be in recession for years.

Problems may occur if the ECB have to tinker with interest-rates to cool some economies, which could screw up any of the economies that are still struggling.

Thursday, November 12, 2009

Want a mortgage ? - Tell us how much you drink !

Calls from the FSA for more rigourous affordability checks on applicants that are applying for mortgages, including having to declare in much greater detail personal spending habits and socialising.

I would have thought that lenders, if they are asking to see some bank statements, would be able to see at a cursory glance whether people are drawing lots of cash, or spending lots in restaurants etc. I had a client not so long ago for a mortgage in Spain who had daily debit transactions on his bank statements for an online poker site. Not a crime by any means, but it's a potential risk for a lender.

The other thing in Spain and France which seems to be tighter, is that the concept of lending 5 or 6 times gross income is completely alien. Lending tends to be limited so that the combination of all credit payments for the applicant, are no more than about 35% of the monthly net income.

So, if you earn £2000 per month, then the maximum credit payments you can make are £700. If you have £400 a month already on a loan and credit cards (say) then that leaves £300 available for a mortgage payment.

There are no perfect solutions, and Spanish banks made many other errors in the past few years. But if a system like this is managed well, then it can also stop ridiculaous growth in house prices.

Small Rise in UK repossessions

The number of UK properties repossessed in the period July to September has risen by 3% to 11,700, according to figures from the Council of Mortgage Lenders (CML).

This total is up 5% from the same period a year ago.

But the CML said it was now cutting its forecast for total repossessions for a second time this year, to 48,000.

This is a combination of lender patience, Government measures, and lower interest rates.

As unemployent is still also rising, it will be very interesting to see what will happen when inflation starts to kick back in, as stoked by Quantitative Easing. Interest rates will have to rise and I fear more people will be in trouble, not less.

Thanks for reading. Visit the manin site at Europa Mortgages

Wednesday, November 11, 2009

Better unemployment figures

Unemployment in the UK is still increasing, but at a slower rate than expected, which is, er, good news.
So, a cause for celebration - more people have lost their jobs, but that's less than we thought.

Ok so I am being facetious. Even so, on the one hand this seems to be regarded as being good news for the economy, whilst on the other hand, Fitch, the credit ratings agency has said that the UK is in danger of being downgraded.

Quite how this all impacts interest rates home and abroad, and the exchange rates, remains to be seen. What does seem clear is that the period of uncertainty for mortgage holders in Spain, France and Portugal is set to continue. Thanks for reading.

Tuesday, November 10, 2009

Andalucia Subsidy for Homebuyers

An article below by Mark Stucklin of Spanish Property Insight that I have printed in it's entirety.
I had to read it 3 times just to take it all in. I think that it would be a good thing if there is demand for this housing and there are enough local residents that want to take up the offer and mortgages to purchase their first home. If the properties are well priced then it may be a decent bet over 9 years - given a return to some sensible level of property price increases - say 2-3% per annum.
Along with the other deals that seem to be offering 100% mortgages for repossessed homes, it does seem to me that the banks could be helping their existing customers more, by having more options to interest-only remortgages etc. That way many people that are on 25 year (say) repayment loans, could take a couple of years interest only, to lower their monthly outgoings and reduce risk of repossession and bad debt, at least until the market settles down a bit. Most people would rather keep hold of their properties and sell in a few years time.

Here is the article-

The government of Andalucia, or Junta, announced yesterday a subsidy of 1 billion Euros to help liquidate the region’s property glut estimated at around 70,000 newly-built homes.

Like the ‘cash-for-clunkers’ programme used to subsidise car sales, public money will now be showered on house-hunters in Andalucia. But second home buyers can stay in their seats as the scheme only applies to local residents buying main homes. Even so, it could benefit foreigners living in Andalucia, and help lift the market out of its slump, which might lift prices for all types of property.

How it works

The way it works is developers participating in the scheme have to offer their property for sale at mortgage cost, wiping out their margins and giving a discount of 20%. Participating banks, for their part, will loan 100% interest only for the first 3 years. Starting in the fourth year the Junta will offer loans to subsidise mortgage payments for up to 5 years and a maximum of 15,000 Euros. As a result, buyers will save as much as 40% over 8 years, according to calculations by the Junta.

The offer stands until the end of 2010, the properties must be newly- built, and the mortgage no greater than 245,000 Euros, the price limit for social housing. Mortgages must be 100% LTV, up to 30 years, charging an interest rate of Euribor +1%

Read the fine print, though, and the Junta isn’t being so generous. In year 9 mortgage lenders have to reimburse the subsidy to the Junta and add it onto the outstanding mortgage, so the borrower pays in the end. Nevertheless, thanks to inflation, buyers will probably have to pay back less, in real terms, than they borrow. Many people expect inflation to take off in the next few years.


You could argue that it is morally questionable for the government to be spending 1 billion Euros subsidising Spanish property buyers when there are so many other more needy causes. And isn’t this is just a wheeze to get buyers to pay inflated prices for homes today whilst transferring the burden of payment onto tax payers in the future?

Wouldn’t it be cheaper, and cause less economic distortion, just to drop prices today to a level that people can afford without crucifying themselves on a 30 year mortgage subsidised by the government?

Spanish bank repossessions "myth"

Here's a report that makes for interesting reading. I have heard from clients that many banks have seemed happy to take back property from people without legal action or repossession, and then offering them with high LTV mortgages, effectively 100%, which never crystallises the loss or bad debt, as it switches the debt to another customer. So the banks have been able to show that they haven't been affected by the credit crunch and bad debts because they have been able to show the debts differently in their books. Plus if they hold the property it can be valued as an asset in the accounts rather than selling at auction and recognising a loss. Having more provision for bad debts (unpaid Spanish mortgages) would affect the reserves that they are required to hold, hence affecting the banks profits, and their ability to borrow and lend.

A new ruling by the Bank of Spain could force Spanish banks to release more discounted property onto the market and address what some agents are calling the “myth” that it’s possible to obtain genuine price discounts from banks.The rule will require banks to provision 20 percent of the value of property for at least a year which will erode the reported profits of banks holding onto large volumes of property containing less than 20 per cent equity.

According to Richard McEnery, Spanish Regional Manager at A Propertys, it is extremely rare to be able to obtain genuine market discounts from banks offering repossessed property. “Most properties aimed at the international market have 100% or even 110% mortgages. Banks are holding onto these properties as they don’t want to make a loss. In most cases it’s a myth that banks are offering the best [repossession] deals, the genuine discounts are coming from private owners who are desperate to sell”.

More developer bankruptcies ahead

The new ruling could change the commercial relationship between banks and struggling real estate developers. Recently, Spanish banks have been keeping the lid on their non-performing loan ratios by accepting property from developers who would otherwise go bankrupt. The new requirement is likely to change the economics of this practice. In certain cases, it will become more “profitable” for banks to let developers go to the wall and write off the loans rather than playing a wait and hope the market recovers game.

Necessary medicine

It’s no secret that the Spanish property market is structurally imbalanced. There are estimated to 3 million unsold properties on the market and banks are keeping prices high by failing to release inventory onto the market. Spain is still the world’s most popular destination with overseas property buyers but until this inventory is cleared, transaction volumes will remain much lower than they need to be and developers and agents will be sat on their hands with nothing to do.

Thursday, November 5, 2009

Decision Day for central banks

Interest rate decision day in the UK and eurozone. Both are expected to keep interest rates on hold, which on the face of it is good news for mortgage holders in the UK, Spain, Portugal, France etc etc.
The main questions surround the levels of quantitative easing and whether or not there is going to be any more money pumped into the economies.
It seems to be the general feeling that interest rates will remain at the record low levels until the end of 2010.
The weakness of the pound I think is going to cause more concern. If you live in Germany and buy oranges from Spain, the transaction between the companies involved is in euros, and you hand over euros in the shop. Inter-country trading, within the eurozone, has to be far more stable than importing products with a weak sterling.
It's a real conundrum as the way of making the pound more attractive is to have higher interest rates, which makes the pound more attractive as the income on investments is higher. So it would be better to hold sterling than euros. Of course, does higher interest rates further screw up any UK recovery and drive further loan defaults, unemployment, and businesses going bust. Many householders and business owners claim not to have felt any benefit from low rates, because finance isn't available. Tricky.........

For mortgages, remortgages and advice on property and mortgages in Spain, France, Portugal, Cyprus, Turkey, Dubai and Florida, go to

Wednesday, November 4, 2009

Self-Cert lenders almost gone

That strangest of mortgage products - the self-cert or non-status appears to be a dying breed - at least for now.
Designed to supposedly allow finacing to business owners and self-employed people that had less straightforward finances and couldn't necessarily prove their income.
A good idea in theory, of course in the boom time it was abused no end by people wanting to borrow more than they can afford.
People lie to get what they want - as simple as that. I have spoken to many mortgage clients over the years about mortgages in Spain, Portugal and elsewhere, and very often when the paperwork arrives they earn less and have higher commitments than they told me.
Surely there has to be a huge question mark over anyone that claims they can't prove their income ? If you are a builder or tradesman and are paid largely in cash, then you need to do some accounts, declare to the Taxman, and then you can qualify for a proper mortgage. Lenders should run a mile from anyone that doesn't put their income through a bank account. You can't have your cake and eat it
Bloody inconvenient for anyone wanting to get a self-cert mortgage, but it can only be an indication that these are high risk loans and lots of them must have gone down the pan in the last few years.
I imagine the lenders may introduce them again but it would have to be low ltv and with a premium on the rate to compensate for the added risk.
I can remember Spanish banks that would lend on the basis of a passport and letter from a "Chartered Accountant" - what a joke. Spanish banks actually tightened up on this type of thing much quicker than in the UK, as soon as they discovered Experian reports really.
What the banks in Spain don't seem to realise, is that all the bad lending that they did - overvaluations and simply asking for payslips, has been negated by their tighter lending criteria of looking at bank statements etc. Of course, all of this can be forged I suppose, but 70% lending to decent clients is surely not too much to ask, is it ?

Currency Market Report

Below is this weeks currency market report provided by our friends at www.foremostcurrency
Sterling remains weak relative to the euro, which, in spite of low interest rates, is still a pain for those euro mortgage holders that are sending sterling each month to make their payments. The biggest force affecting the exchange rates at the moment seems to be how the UK and Eurozone are dealing with the recession.

Euro (EUR)
The Euro stabilised towards the end of last week after early losses against Sterling. Consumer prices in the Euro zone fell 0.1% during the year and combined with a slowdown in money supply growth, to 1.8% in September from 2.6%, made October the fifth consecutive month that the annual rate has remained negative. In turn this raised fears that the European Central Bank (ECB) may need to keep interest rates low in order to maintain support for the economy. Finally, the week ended with the announcement of a 9.7% unemployment rate, the highest since the Euro's introduction.
The GBP/EUR rate closed up 2.66% last week at 1.1159, from 1.0870 a week earlier, benefiting those converting Sterling into Euros. Those looking to do so in the future should discuss the possibility of a forward contract in order to take advantage of today’s rates up to two years into the future.
This week sees the release of the latest interest rate decision by the European Central Bank on Thursday. With a no-change decision widely expected the Euro is likely to gain strength and with it weaken GBP/EUR exchange rates. Finally, coupled with the prospect of further Quantative Easing by The Bank of England on Thursday those looking to purchase Euros should perhaps be considering the possibility of doing so before rates fall further.
British Pound (GBP)

The volatile nature of markets was illustrated by Sterling’s contrasting performance from the beginning to end of the week. Friday’s shock negative GDP sent the Pound into a nosedive against the Dollar falling as low as 1.6251. Towards the end of the week however, we saw the Pound keep pace with the greenback as risk appetite returned and showing rises above $1.66, its strongest in nearly a week and almost 4 points up from Monday's low of $1.6251.
The most important sentiments we hope to hear from the BoE are that of decisive and precise action; a categorical statement that either QE is finished or an exact final amount that will be allocated would bode well for the Pound in the future. With inflation figures in the UK still very low, GDP still negative, a country in recession and the banking sector still on its knees and now facing stiff reform measures implemented by the Government, it seems odds on, around 70/30, for more stimulus, many expect the BoE to increase QE by £25bn to £200bn on Thursday 5th November, although this would undermine the Pound an unexpected rise (rumors of a £50bn increase) would certainly mean a considerable Sterling downside as it we have seen before.
US Dollar (USD)
The US Dollar lost ground against Sterling last week, but finished higher relative to most other major currencies. As investor confidence in global economic recovery prospects waned, the US Dollar generally found support amid the weakness in global stock markets a characteristic relevant to its safe haven status. The GBP/USD rate closed up 0.85% at 1.6445, from 1.6306 a week earlier.
Brighter news came as the US economy exited recession, with US GDP expanding at a year on year rate of 3.5%. This was the first positive reading since the second quarter of 2008, but the US Dollar weakened slightly following an associated lift in investor risk appetite benefiting some major currencies such as Sterling.
Several key releases this week could induce greater volatility in foreign exchange markets. The US Federal Reserve's interest rate policy meeting is scheduled for Wednesday. Whilst no major policy changes are anticipated, changes in its assessment of economic conditions might impact on US Dollar exchange rates. Finally Friday’s Non-Farm Payroll report which has played an important role in the past with exchange rate movement will clarify conditions in the US Employment Market.

Christmas could come early if you need to repatriate your funds from the Dollar as the majority of the financial industry is expecting further QE which may result in Sterling weakness however, if risk appetite plays another role in the markets the initial weakness may well be short lived. If, however you wish to buy the Dollar, to avoid disappointment, it could be wise to do so before the BoE’s announcement on Thursday 5th November.

This Weeks Data

We have interest rate decisions for the USA, Australia, the UK and the EU.

The Euro’s prospects are likely to be driven by any comments about its strength from European Central Bank President Jean-Claude Trichet following the interest-rate meeting. The BoE is expected to increase its current stance on asset purchases, and inject further funds into the economy, and also keep interest rates at a record low.

The European Central Bank expected to keep rates on hold but may make further talk on exiting its loose monetary policy. This could cause further Sterling weakness, so contact your account executive early to discuss the possibilities of locking in current rates before the market prices in these future movements.

Wednesday also sees various measures of the economy and inflation for the UK, while Friday sees US non Farm Payrolls. The report presents the number of people on the payrolls of all non-agricultural businesses. The monthly changes in payrolls can be excessively volatile, and so often affects the value of USD.

Ger - Purchasing Managers Index
EU - Purchasing Managers Index
UK - Purchasing Managers Index
US - Home Sales

TuesdayAus - Interest Rate Decision
UK - PMI Construction
US - Factory Orders
US - Consumer Confidence

UK - Nationwide Consumer Confidence
Aus - Retail Sales
Ger - Purchasing Managers Index
EU - Purchasing Managers Index
UK - Purchasing Managers Index
UK - BRC Shop Price Index
US - Fed Interest Rate Decision
US - Unemployment
NZ - Unemployment

Aus - Trade Balance
Swi - Consumer Price Index
UK - Industrial and Manufacturing Production
EU - Retail Sales
EU - Interest Rate Decision
UK - Interest Rate Decision

US - Non Farm Payrolls

Tuesday, November 3, 2009

Spanish Mortgages - Toxic Assets

I have heard that as part of the proposed break up of the bailed out banks, the Spanish mortgage parts of the business are likely to form the toxic assets and be hived off, possibly into a so-called "bad bank".
What does this mean for the operations in Spain and their current mortgage book ? Are they due to be closed, or given a clean slate to build their mortgage books again ?
Certainly Lloyds and Halifax have a branch network and probably quite a lot of normal retail customers with current accounts etc, so I think there must be a need to keep these branches.
Hardly good for morales or market sentiment if the UK banks say that all their Spanish mortgages are useless and may turn into bad debts........

Dodgy bankers creaming off customers in Spain

News that RBS is investigating two UK based members of staff that were involved in their Spanish mortgage business comes as a suprise. It's a suprise because its amazing that this type of story hasn't been prevalent over the past few years.
Think about it, in the boom years estate agents were earning normally at least 5% and up to 10% of the price of a property in commission.
If you have a client referred to you by his bank manager, and they buy a property that earns you €12,000 in commission, then it's easy to see how kicking back a few grand to the bank manager helps keep the flow of clients coming.
That's what many people were doing, after all, lawyers, Spanish bank managers, uk based agents, and basically any old Tom, Dick or Harry, would refer anyone looking for a property to an agent, in the hope of a sale and a kickback of some commission.
This was almost certainly driving the increase in property prices, along of course with ever greedier developers.
If they were going to pay 8% commission say, then that would simply be built into the price. Agents had no interest in any property that didn't have 5% commission in it, so all resale properties would have the commission added to the price the vendor wanted. All the time the vendors heard that prices were going up so that just fuelled the increases. In a rising market this worked for several years. Not any more I think. Coupled with the normal taxes and costs of 10%, it would be often at least 15% that the client was paying on top of the real price of the property - ie the price that the vendor would receive.
I don't know how we get out of this in Spain......

1 bank, 3 different offerings

In Spain now, we have the possibility of mortgages with LloydsTSB, Halifax, and Lloyds International, all part of the same bank. But, when it comes to mortgages in Spain, they are all competing against each other with different offerings, none of which is perfect by any means.
Halifax will subrogate (take over your Spanish mortgage and pay the costs) whereas the LLoyds pair won't.
Halifax are still offering interest only, the others aren't.
Add to this the differences in rates, charges, maximum terms and ages, and what you have is a confusing mess.
If they would only put their heads together and produce a portfolio of Spanish mortgage products that was uniform and market leading then they could literally clean up.
A decent higher LTV interest only option for second-home owners would be really profitable business for them, and help people with holiday places that may be struggling against the increasing stupidity of the Spanish banks.