It makes you wonder what is going on when a Spanish savings bank starts offering to lend you money for free, at least for 3 years. A mortgage with no interest or capital repayments at all for the first 3 years, and no capital or interest roll up for later years. Also, a mortgage with no admin fee (apart from notary costs, I guess) and a LTV of up to 90%. None of that sounds like good business for a mortgage lender, so why offer it?

To try and shift a few of the properties now on your books, perhaps. The 3-year free mortgage is being offered by Valencia-based Bancaja, one of Spain’s biggest cajas (savings bank), with a big exposure to property on the Valencian region’s over-developed coast. The offer only applies to homes that belong to Bancaja or one of the developers it has financed, which is the key to understanding this promotion. It may not make them money, but at least it might help them shift a few of their properties.

Some properties covered by the promotion, known as the ‘Bancaja Housing Commitment 2010’, might appeal to foreigners looking for a holiday home or to relocate. Unfortunately, it is not clear if the offer is open to non-residents. A resale villa in Javea, for example, on the market for 705,000 Euros, is offered at Bancaja’s Spanish website for €0 for 3 years. At the lender’s English website www.bancajahabitat.co.uk, the same property is advertised for €1,410/month for the first year. If you are interested in buying property in Spain it might be worth asking at one of the branches, as a completely free mortgage for 3 years is worth a butchers, especially if inflation picks up (if you assume inflation of 4% p.a. a loan of €200k is only worth around €177k in real terms after 3 years – a nice little discount).