Mortgage lenders and developers in Catalonia have struck a deal to make it easier for people to buy homes in the region, which encompasses the popular holiday home destinations of the Costa Brava and Costa Dorada. Mortgage lenders have agreed to offer 100% financing on the condition that developers drop their prices by 20%.

The agreement was signed between the Catalan Federation of Savings Banks (known in Spain as Cajas) and the Catalan Federation of Developers and Constructors (FECAPCE). It only applies too new homes from developers belonging to the Federation, and only in Catalonia, though there have been similar agreements in other areas.

How does it work? The developer has to offer a discount of approximately 20% based on the original valuation behind the developer’s mortgage. That will mean that buyers taking over the developer’s mortgage get financing of between 90% and 100%.

The agreement only covers developments started before June 2008 that are already finished or will be in the first quarter of 2010.

You could argue that the 20% price reduction offered by the developer’s does not bring prices down enough to meet real demand. But coupled with better mortgage conditions this move will make housing in Catalonia more affordable (whilst interest rates remain unnaturally low, that is).

“This agreement is very important because it will allow a significant number of families to participate and get better financing to buy a home,” said Enric Reyna , President of FECAPCE. He also claimed it will help “mitigate” the problem of the glut of new homes.