This is a website for buyers, owners, and sellers of property in Spain, offering reliable information and resources to help you get things done with confidence. It is run by Mark Stücklin, author of the Spanish Property Doctor Column in The Sunday Times (2005-2008), and the book ‘Need to Know: Buying Property in Spain’ published by Collins.
8% of Spanish mortgage borrowers are in negative equity, claims a recent report from ratings agency S&P.
That sounds bad, but keep in mind that in the UK back in 1993, 25% of home-owners who bought their homes between 19988 and 1991 were in negative equity. In comparison this rate is not off the charts (though I am ware it is not exactly comparing like with like).
It is also worth noting that S&P base this conclusion of 8% negative equity on the assumption that hose prices are down around 20% from peak, as suggested by data like Tinsa’s benchmark house-price index.
If you assume prices are, in fact, down 30 to 35pc, which might be more likely, then negative equity shoots up to between 20 and 28pc of mortgage borrowers.
As to be expected, negative equity is a biggest problem in areas where prices have fallen the most, like the Valencian Region, where there are too many new homes, not to mention holiday-homes. 12.4% of borrowers in the Valencian Community are sitting on negative equity, followed by Navarra (12.3%), Castilla La Mancah (11.4%), and Murcia (10.6%). At the other end of the scale it is hardly an issue in Galicia, where just 1.4% of borrowers are in negative equity.
Negative equity is also much higher amongst recent borrowers who bought in 2007 and 2008. This group also tended to buy in areas where prices have fallen the most, compounding their woes.
The problem is expected to get worse before it gets better. “We expect house prices to continue falling (in Spain), even when they have stopped falling in other countries,” say S&P in their report.
Surveyor says:
Its going to get much worse. Consider the following
There are many offers of 100+% mortages being given by Spanish Banks. These are leading us down the path that started it all in the US. The mortgages are given over the properties at above market values (probably the value of the original loan of the property they have ‘possessed’). The borrower maybe thinks that there is no harm in that as it gives him a house for nothing or very little. But what if he can’t keep up the payments or needs to move on? He is in an instant negative equity situation, plus the 10+% costs of house sale, and is competing against banks offering 100% when they will maybe only offer a max 70% mortgage on a house they are not selling directly from their ‘stock’. The buyer then either defaults and the bank takes back its property to do the same again, but for a while having removed it from its books and received some payments; or the buyer drops the price to sell it and accepts the loss, and lowers the comparative market value of all around even further. Leaving the bank, the borrower, the neighbours and eventually the country with an even bigger negative value of assets to loan.