New research finds that banks are exploiting their control of mortgage financing to sell their properties at above market rates, to the detriment of private vendors.
A new report by Spain’s Organisation of Consumers and Users (OCU) finds that banks and savings banks are using “questionable sales methods, offering favourable mortgage terms to help sell their properties, which they always sell at above market rates.”
Banks, for example, regularly lend 100% to buyers of their own properties, but no more than 80% to others.
“Instead of reducing prices in line with market realities, they are taking advantage of their role as lenders, and only offering good mortgage conditions for their own properties,” explains the report. “As a result, anyone who wants to buy a home with a mortgage has to make do with one of the banks’ properties, and pay an above-market price.” This is a “serious obstacle for private vendors,” they say.
Some banks are worse than others. The following graph shows the spread between what banks charge their own buyers (entidad) and what they charge to lend to others (particular). Santander are the worst, charging 4pc for their own, and 7pc for others. BBVA is the most even-handed, charging 3.5% and just over 4pc respectively.
OCU recommend that all buyers “thoroughly check prices and offers, and search for conditions in line with borrowing abilities, given that buying a property from a bank is no more advantageous.”
Bank buyers immediately plunged into negative equity
It’s a similar story from recent research by RICS (Royal Institution of Chartered Surveyors) in Spain, who found that the more expensive of two identical flats in Madrid sold first because it came from a bank offering better financing.
Despite asking 45pc more than a private vendor (bank property €160,000 vs private vendor €110,000) the bank property came with 100pc financing and better rates, so sold first. Anyone looking to buy cheaper from the private vendor would have to go in search of financing, and would not get much of a welcome from banks: The conditions would be off-putting.
In the light of this example, what is the market price? asks José Luis Ruiz Bartolome, a property expert and author of the book ‘Adiós, ladrillo, adiós’ (rough translation: Goodbye, Property, Goodbye) in an article for El Economista (in Spanish). Is it €160,000, at which one property sold, or is it €110,000, at which one didn’t? Interesting question.
He points out that the official stats are based on the ‘bank’ market prices, which in this case are 45pc higher than what private vendors are asking. Is that why the official stats seem so detached from reality?
And look at it this way. The day after buying from the bank, the new owners have a paper loss of at least €50,000 on the property, not including expenses. Just like the other private vendor, they would have to ask €110,000 or lower for any hope of making a sale.
I should add that this situation mainly applies to house-hunters looking for primary residencies in Spanish cities. When it comes to holiday-homes on the coast, banks are more eager to liquidate their stocks, and price more aggressively, often undercutting private vendors. Bad news for private vendors, but good news for foreign holiday-home house-hunters.