A summary of the Latest Euribor and Spanish mortgage news

Euribor (12 months), the interest rate normally used to calculate mortgage repayments in Spain, rose to 2.11pc in October (chart above), a percentage increase of 2.1pc on the previous month.

Over 12 months Euribor was up 41.1pc (chart below), which means higher monthly mortgage payments for those with annually resetting Spanish mortgages. Average mortgage repayments will rise by around €45/month, €540/year.

The next chart illustrates that, despite recent increases, Euribor is still close to historic lows. Markets expect it to continue rising, albeit at a very subdued rate.

New Mortgage Lending

New mortgage lending is the lifeblood of the housing market without which most Spaniards cannot afford to buy homes. So it is particularly worrying that new lending fell 49pc in August compared to a year before, the lowest level on record for this data series published by the Statistics Institute (INE). New mortgage lending has now fallen for 16 consecutive months, suggesting that the credit crunch is still alive and well in Spain.

The average new mortgage value in August was €106,922, 12.6pc lower than a year before.

Spain’s official House Price Index, published by the Statistic’s Institute (INE), shows that house prices fell 6.8pc over 12 months to the end of June, compared to -4.1pc at the end of March.

The fall is in-line with the 7pc annualised decline in August announced by Tinsa, reported here last week.

So it looks like Spanish property prices are back on a downward trend, having spent most of last year clawing their way towards positive territory, though never quite reaching it.

Broken down by type, new build prices fell 5.2pc, and resale prices 8.3pc.

As you can see from the chart below, which gives annualised declines by region in Q1 (orange) and Q2 (red), prices fell the most in La Rioja (-10.9pc) followed by Cantabria (-9.2pc), both in the North of Spain.

Prices fell the least in The Balearics, where the property market is holding up better than many parts of the peninsula.

Average Spanish house prices have declined 5.9pc over the last year to the end of May, according to the house price index published by Tinsa – one of Spain’s leading appraisal companies. Holiday homes are down even more.

House prices are now back to where they were 6 years ago in May 2005, 3 years before the bubble burst.

Prices fell the most on the coast (-8.1pc in 12 months), where the market is struggling to digest a glut of holiday homes.

Peak-to-present, house prices on the coast have fallen the most (-27.8pc), followed by cities (-22.7pc), suburbs (-22pc), and the islands (-19.3pc).

Prices have almost certainly fallen more than the index suggests.

Year-end data from the Government confirms that 2010 was the worst year on record for the Spanish home-building industry. The chart above illustrates just how much of a pummelling the industry has taken in the last four years.

There were just 91,662 planning approvals in 2010, down 17pc on 2009, and 89pc on the record 865,561 in 2006.

-89pc in 4 years: This figures is dramatic. It tells a story of an industry that has all but collapsed. And not just any industry; residential construction was responsible for much of Spain’s growth in employment and GDP over the last decade.

The only good news, if you can call it that, is that the collapse is bottoming out.

The following chart from idealista.com takes a longer-term view and shows how planning approvals have fallen to the lowest level on record. Things weren’t even this bad in the depths of the last recession in 1992.

As I said on this subject last month, my feeling is that we are the beginning of the end of this crisis. Repeating my conclusion last month, I forecast that 2010 will mark the bottom of this cycle for Spain’s residential construction industry. New home construction will start growing again in 2011, albeit weakly and from an exceptionally low base. That’s my forecast, but I could easily be wrong.

In the meantime I know of architects that are having to baby-sit for a living.

Altamira – Santander’s real estate arm – are offering 200 homes with discounts of between 50pc and 58pc. One development in Menorca is particularly interesting.

The development in question is called Sa Caleta, on the edge of Ciutadella, Menorca’s second biggest city, in the north west of the island.

Spacious semi-detached homes of 237m2 with 4-beds, private terraces, communal gardens and pool, etc., from 260,000€.

I’ve been watching this development for more than a year. It started off too expensive, but now I think it’s a good price.

A couple of minutes walk from a pretty cove and small beach, I bet you could get a reasonable rental yield at this price.

Menorca is a gem, largely unspoiled by the building boom. If you are interested in property there, you might want to have a look at this.

Added to which 100pc financing and 40-year mortgage terms (in some cases).

I wish I could say that Santander Altamira were paying me for this, sadly not.

Check it out

Cala Anguila, Puerto Cristo, Mallorca (Majorca). 25 high-quality apartments next to the beach from only 199,500 Euros, built by Taylor Wimpey, a blue-chip UK house builder with decades of experience building homes in Spain.

Publicity

Residencial Cala Anguila is a new residential complex of luxury apartments with communal gardens and swimming pool, good sized terraces and high-quality finishes developed by Taylor Wimpey on one of the last remaining plots with direct access to the beach in Mallorca.

The new Cala Anguila residential development is located on the east coast of Mallorca near Porto Cristo. It is a naturally beautiful area where the crystal clear waters of the Mediterranean peacefully lap the sandy beaches of the surrounding coves. Cala Anguila benefits from being one of the last few plots of land for a home next to a beach in Mallorca.

Cala Anguila consists of 25 two-bedroom apartments designed to reflect the beauty of the surrounding area. All the apartments come with a private outside parking space.

These properties are available now from €199,500. Contact Taylor Wimpey España today on 08000 121 020 or visit www.taylorwimpeyspain.com for more information. Outside of the UK call 00 34 971 706 244.

The ranking for 2011 goes as follows (2010 in brackets):

1. Spain (1)
2. France (3)
3. Portugal (4)
4. Italy (6)
5. Florida (2)
6. Turkey (5)
7. Greece (8)
8. Cyprus (7)
9. Malta (new entry)
10. Egypt (new entry)

Here is what they had to say about Spain:

Once again, Spain remains the most popular destination for Brits to buy abroad and therefore tops our chart of the best places to buy abroad in 2011. After all, it has all the right ingredients – excellent access from the UK, sun, sea, culture and infrastructure. With repossessed properties and distressed sales hitting the market, the home of the Costas, Balearic and Canary Islands still has some great deals for the diligent buyer. Huge discounts on holiday homes mean there’s a multitude of destinations and property options on offer. We highlight where to find the best deals and meet the British couple for who 2010’s infamous ash cloud meant they missed out on a property in Murcia only to return later to find a better deal. We show you some properties on offer in this region with golf-resort apartments from €90K.

Read full article at APITS

A recent article published by Fotocasa – one of the biggest property portals in Spain – might help to shed some light on this apparent contradiction.

They get data and opinions from various sources to see if a recovery is genuinely under way or if it just an illusion.

Several sources report a recovery in sales starting at the end of 2009 and lasting the first half of this year, driven by the elimination of mortgage tax breaks in 2011, and the rise in VAT this year, both of which brought sales forward, plus low interest rates, and the effort banks are making to shift their stock of property. Fotocasa themselves have seen listings rise 103% in a year, and property searches rise 55%. All of that suggests the market has bottomed out.

Just an illusion

But then along comes Borja Mateo, a self-proclaimed real estate expert, with a plausible reason why the recovery in sales might just be an illusion.

According to Mateo, who has worked with Spanish banks for some years, and should know a thing or two about how they operate, the rising sales figures are just a reflection of the “enormous weakness of Spain’s banks and real estate market.”

Swapsies

The problem is that the official sales figures include what is known in Spain as ‘daciones en pago’, basically debt for property swaps (bank takes the property and cancels the debt). Mateo argues that banks are using swaps to avoid recognising losses they would face in foreclosure and selling at public auction.

The beauty of swaps for banks is they, not the market, get to decide the value of their own property portfolios. “If they were to recognise the real market value of their assets they would be very close to bankruptcy as the market value of their assets is far below the book value of their loans,” claims Mateo, who sees plenty of reasons to suspect the Bank of Spain is complicit in the cover up.

What is worse, banks are also keeping insolvent clients on life support with new loans to avoid having to recognise bad debts, claims Mateo. “The real level of the (banking) system’s bad debts is above 11%, the official rate is 5.5%,” he says. “Recognise real losses would put them (the banks) in a very, very difficult situation.”

Dismal forecast

Mateo forecasts that sales will fall significantly in the near future, thanks in part to end of mortgage interest tax breaks in 2011. Vendors are starting to give ground on asking prices again because “many people realise that if they don’t’ sell in 2010, sales will be much tougher in 2011.”

“House prices and rents will continue falling in the coming years. It’s an unstoppable process,” he concludes.

The Spanish property market grew robustly in August, according to the latest figures from the National Institute of Statistics (INE).

Excluding social housing, there were 39,250 house sales in August, up 1pc on July and 26.6pc on the same month last year.

As you can see from the chart above, the market is clearly recovering from a bottom last year, and the second half of the year could be the best since 2007.

In particular, resale properties had a good month in August, with sale up 34pc compared to last year. New build sales were up by a quarter.

The following table shows sales and rates of change in the year to August over the last 4 years.

Despite growth of 12pc this year, the market is still 24pc smaller by transactions than 2008, and 45pc smaller than 2007.

Assume that prices have fallen 20% since 2007, and that means the market is down 56pc by value compared to 2007. August may have been a good month for sales by recent standards, but the Spanish property market is still worth less than half what it was just 3 years ago. That has big implications for the Spanish economy.

And finally, the following table shows you the change in selected regional markets in the year to date. Barcelona is doing best, up 44pc on the same period last year, and Las Palmas in The Canary Islands is doing worst, down 15pc.

The Spanish property market is on the mend, the Spanish PM has claimed in a visit to New York to reassure Wall Street that Spanish Government bonds are a safe investment.

Spain’s Socialist PM Zapatero is in on an official visit to New York, where he is taking every opportunity to tell everyone how swell things are in Spain, not least in the housing market.

After reaffirming his government’s resolve to slash the deficit, and using the pages of the Wall Street Journal to declare the debt crisis over, Zapatero then went on TV to argue that the Spanish property crash has run its course.

In an interview with the financial channel CNBC, Zapatero even claimed that house prices are beginning to rise in some areas, though not for holiday homes.

“In fact, in the last 2 to 3 months, we have seen that prices are not only not falling, but even rising in certain parts of Spain, where people buy their first home,” Zapatero told Maria Bartiromo, CNBC’s star presenter (also known as the ‘Money Honey’). This, he argued, shows that “demand appears to be on the rise.”

Zapatero is at odds with 80pc of Spaniards, who believe that house prices will fall over the next 12 months.

Zapatero’s optimism will be inspired by official figures from both the Ministry of Housing and the Institute of National Statistics showing home sales increasing and prices rising in the most recent quarter. But as I wrote in a recent article ‘Official figures claim property prices rising for first time in 3 years’, if you believe that, you’ll believe anything. The question is; will Wall Street believe anything? It certainly has done in the past.

Spanish Government Debt as Safe as (Spanish) Houses

The Spanish PM, who is on an official visit to NY, is using the opportunity to try and reassure the financial markets. According to El Pais, Spain’s leading (and government-friendly) paper, Zapatero is trying to convince Wall Street that “investing in Spain is a sound and sensible option.” Zapatero told investors in NY that Spanish government debt is “safe and profitable”.

If Zapatero can convince investors that Spanish bonds are safe, the Government’s borrowing costs will go down, which might help Zapatero get re-elected.

Earlier this year, when the Greek crisis came to a head, the markets also began to worry about the risk of default on Spanish bonds, driving up the interest rate investors charge Spain to borrow money. Rates have since subsided, but doubts linger on, so Spain is not out of the woods yet.