Higher mortgage and transactions costs mean that Spaniards buying homes with a mortgage hardly benefit at all from the Spanish house price crash. The big beneficiaries are cash buyers from abroad.
Spanish house prices have crashed an average of around 30pc according to official figures, and 40pc to 50pc in reality, which explains why foreigners are jumping into the market in rapidly growing numbers. But for many Spaniards buying with a mortgage, the cost of buying a home hasn’t fallen at all.
The reason? Higher borrowing costs plus the end of mortgage tax relief mean that monthly mortgage payments for someone buying with a mortgage today could be higher than someone who bought at the height of the bubble.
Mortgage borrowing costs have surged in Spain, despite a dramatic fall in base rates to historic lows. It is now one-and-a-half times more expensive to borrow in Spain than in Germany, according to a recent Bloomberg article by Charles Penty.
The average rate on a new mortgage with a term of more than 10 years was 5.19 percent in October even as 12-month Euribor, the benchmark used to price most Spanish home loans, has dropped as low as 0.51 percent, according to data compiled by the Bank of Spain.
That compares with a mortgage rate of 5.84 percent in 2008, when 12-month Euribor was as high as 5.38 percent. The same mortgage in Germany would cost 3.14 percent, 3.19 percent in France and 4.77 percent in Italy, according to the European Central Bank.
In Spain, a monthly installment for a “standard” 2007 floating rate, 27-year mortgage with a loan-to-value ratio of 80 percent would only be 5 percent higher than the same mortgage today because of higher margins now charged by banks, according to a Nov. 7 Fitch Ratings report.
This partly explains why the Spanish property market has imploded, and still shows little sign of responding to lower prices, with the exception of foreign demand
The irresponsible buyer who bought at the top of the market is paying less than the prudent buyer who’s in the market now — it’s crazy,” said Juan David Garcia, a structured finance analyst at Fitch in Madrid, in comments to Bloomberg.
Foreign cash-buyers swoop
Cash buyers from countries with stronger economies than Spain are the biggest beneficiaries of falling house prices in Spain. For example, a cash buyer with Swiss Francs can now buy a home in Spain for around 70pc less than 2007, thanks to the combined effect of lower house prices and a stronger Swiss Franc. Scandinavians in general, and Norwegians in particular are also riding high in the Spanish property market today.
Which helps explain why foreign demand for Spanish property is the only market segment showing any vitality in recent years. Home sales to foreigners exploded 24.7pc in Q3, to 12,070, the ninth consecutive quarter of growth. Foreign buyers are now 17.2pc of the market, the highest level since the Government started publishing this data. Foreign buyers were concentrated in Alicante (3,158), Malaga (1,552), Barcelona (889), Girona (758), and Tenerife (705).