Re: Re: Investor confidence in Spain improves says WSJ


@shakeel wrote:

“those on euro mortgages with not too much equity will be crushed “
Ozmonkey, Can you please explain this did you mean those with too much or too high gearing will be crushed ???

Hi Shakeel

Hope you are well and I have enjoyed your posts over the years.

Yes, certainly.

Those folks that are highly geared (ie big mortgage little deposit) did it in good times when property was thought to only go up in value.

In a down market (like now), 2 critical things will happen:

(i) Interest rates will increase and so will the cost of the mortgage — this we all know and understand — the killer is the next point :
(ii) all mortgages (UK ones do, suspect Spanish ones also) have fine print that says if the Bank determines you are in negative equity, the Bank will demand a “deposit top up” to reduce their exposure and give you 30 days to make the cash deposit — people in this bind will get a letter to pay a cash top up of 10-20% of original property market value on the documents.

Point (ii) is already happening here in London for those with BTL portfolios, HSBC is famous for sending out the letters and now all banks do it.

I dont know if this has started yet in Spain, but it will — todays action in Ireland will only increase the chance it will happen because bond markets will now not lend to Southern EU nations (Spain, Portugal, Italy — who all depend on this funding avenue) because the Irish want to impose haircuts on EU bondholders (ie other Banks, pension funds).

Sorry to be rambling, but its important to explain the source of the knock on effect you will see in Spain’s property market down the track.

Best Wishes
— Munky