Government mortgage bailout no joy for holiday home owners

Jose Luis Rodriquez Zapatero, Spain’s Prime Minister, has announced plans to bailout mortgage borrowers who have lost their jobs by allowing them to defer half their mortgage payments for up to 2 years. The move is targeted towards helping low-income home owners in financial difficulties, and will do little or nothing to help the holiday home market on the coast, where most foreigners buy.

In what amounts to a massive renegotiation of mortgage conditions, the government plans to allow unemployed mortgage borrowers to defer half their monthly mortgage payments, or up to 500 Euros per month, for the next 2 years, until January 2011. To qualify borrowers must be unemployed, or self-employed with financial problems, and must have a mortgage of less than 170,000 Euros taken out before the 1 September.

The government expects 500,000 mortgage borrowers to benefit from this partial bailout, though none of them will be non-resident holiday-home owners on the coast. Mortgages on second homes and property investments are excluded from the plan.

Spanish banks have welcomed the proposal, which will help reduce their rapidly rising mortgage default rates. Under the plan, Spain’s Institute of Official Credit (ICO), backed by the Spanish government, will guarantee all deferred mortgage repayments, not the banks. So the Spanish taxpayer will pick up the bill for all future defaults on mortgage payments deferred under the scheme.

The plan, which may help some over-extended mortgage borrowers stay in their homes, does not address the key problem of the Spanish property market, namely that Spanish property is still enormously over-priced in relation to incomes.



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