Bank repossessions are more expensive but better financed

New research finds that banks are exploiting their control of mortgage financing to sell their properties at above market rates, to the detriment of private vendors.

A new report by Spain’s Organisation of Consumers and Users (OCU) finds that banks and savings banks are using “questionable sales methods, offering favourable mortgage terms to help sell their properties, which they always sell at above market rates.”

Banks, for example, regularly lend 100% to buyers of their own properties, but no more than 80% to others.

“Instead of reducing prices in line with market realities, they are taking advantage of their role as lenders, and only offering good mortgage conditions for their own properties,” explains the report. “As a result, anyone who wants to buy a home with a mortgage has to make do with one of the banks’ properties, and pay an above-market price.” This is a “serious obstacle for private vendors,” they say.

Some banks are worse than others. The following graph shows the spread between what banks charge their own buyers (entidad) and what they charge to lend to others (particular). Santander are the worst, charging 4pc for their own, and 7pc for others. BBVA is the most even-handed, charging 3.5% and just over 4pc respectively.

OCU recommend that all buyers “thoroughly check prices and offers, and search for conditions in line with borrowing abilities, given that buying a property from a bank is no more advantageous.”

Bank buyers immediately plunged into negative equity

It’s a similar story from recent research by RICS (Royal Institute of Chartered Surveyors) in Spain, who found that the more expensive of two identical flats in Madrid sold first because it came from a bank offering better financing.

Despite asking 45pc more than a private vendor (bank property €160,000 vs private vendor €110,000) the bank property came with 100pc financing and better rates, so sold first. Anyone looking to buy cheaper from the private vendor would have to go in search of financing, and would not get much of a welcome from banks: The conditions would be off-putting.

In the light of this example, what is the market price? asks José Luis Ruiz Bartolome, a property expert and author of the book ‘Adiós, ladrillo, adiós’ (rough translation: Goodbye, Property, Goodbye) in an article for El Economista (in Spanish). Is it €160,000, at which one property sold, or is it €110,000, at which one didn’t? Interesting question.

He points out that the official stats are based on the ‘bank’ market prices, which in this case are 45pc higher than what private vendors are asking. Is that why the official stats seem so detached from reality?

And look at it this way. The day after buying from the bank, the new owners have a paper loss of at least €50,000 on the property, not including expenses. Just like the other private vendor, they would have to ask €110,000 or lower for any hope of making a sale.

I should add that this situation mainly applies to house-hunters looking for primary residencies in Spanish cities. When it comes to holiday-homes on the coast, banks are more eager to liquidate their stocks, and price more aggressively, often undercutting private vendors. Bad news for private vendors, but good news for foreign holiday-home house-hunters.

Comments

comments

5 thoughts on “Bank repossessions are more expensive but better financed”

  1. Des Rowson

    At last someone has put into print what we have been saying for ages regarding Bank repossesions, agents such as ourselves price properties to sell as it costs money to advertise. The UK public are still looking for the so called bargains when European buyers are snapping up the bargain properties at reasonable prices. Speak to any good agent and they will tell you that enquiries are coming mostly from the Eurozone not the UK.

  2. D Browning

    That is because other Euro nations are not affected by the weak £. Even though spanish house prices are cheap in Euro terms, they are not cheap when you convert back to £ sterling. That is why the Scandinavians etc are loving the situation whilst Brits are largely staying well clear.

  3. Chris Nation

    “As a result, anyone who wants to buy a home with a mortgage has to make do with one of the banks’ properties, and pay an above-market price.” This is a “serious obstacle for private vendors,”

    Not true. Nobody has to “make do” with a bank property. If a buyer has a deposit that suffices, a private vendor property at a much lower price will save a buyer the amount of that deposit and maybe more. The overall borrowing costs may be no more than borrowing a larger [100%] amount – and again, may be less – and the negative equity demon will not get to bite the buyer’s bum.

    Anyone who goes for 1005 mortgage in the current financial state is set for a fall – tears before bed-time.

  4. Chris Nation

    “As a result, anyone who wants to buy a home with a mortgage has to make do with one of the banks’ properties, and pay an above-market price.” This is a “serious obstacle for private vendors,”

    Not true. Nobody has to “make do” with a bank property. If a buyer has a deposit that suffices, a private vendor property at a much lower price will save a buyer the amount of that deposit and maybe more. The overall borrowing costs may be no more than borrowing a larger [100%] amount – and again, may be less – and the negative equity demon will not get to bite the buyer’s bum.

    Anyone who goes for 100% mortgage in the current financial state is set for a fall – tears before bed-time.

  5. Terry Callister

    Banks will always look after themselves first and stuff the customer. Chris Nation are you a director of a bank by any chance. The difference between a 7% mortgage and a 4% mortgage over its life time could be crippling to the buyer and never mind what the banks will do to the interest rates in the future.

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About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on ms@spanishpropertyinsight.com.