Spanish Bank Repossession Property for Sale

Bank Repossession Spanish Property

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Why are Properties being Repossessed by Banks in Spain?

Due to the global economic crisis & credit crunch, which began in late 2007 and has become more severe since, there are now numerous cases where property investors and home owners alike are losing their homes. In many cases this is because they can no longer afford to meet the repayments on their mortgages secured against their property, which means that banks can choose to repossess their asset (i.e. the property), as it was taken as collateral against their mortgage.

The reasons why they can no longer afford the mortgage repayments on their property can vary. In some cases, such properties were bought as investments where the investor intended to sell the property on, but due to the dip in the property market has been unable to do so. In other cases, the owners of the Spanish property may have lost their jobs or taken a pay cut, which has meant that they cannot afford to maintain the property. Many UK based owners of Spanish properties have also been affected by the falling strength of the pound against the euro, which means that the repayments have become more costly to them if they're sending money from the UK. Nevertheless, whatever the reason for the problems of the home owners, it is an obvious problem that there more properties being repossessed by banks, which is presenting a larger and larger number of bank repossession Spanish properties for sale.

Why are prices of Spanish Property not dropping as significantly as they should?

Ideal Spanish Property has received many enquiries in recent years from investor clients who have been looking to buy Spanish bank repossession properties at a large discount. However, many have been disappointed to find out that these repossession properties were not as heavily reduced in price as they may have hoped. There are many reasons for this, but perhaps the most significant reasons that prices of Spanish bank repossession properties have yet to fall as much as investors have expected them to are:

(1) Previously, banks had been generally looking to recoup the whole mortgage amount outstanding on the Spanish property. Because many of the purchasers who defaulted on the loans had taken out 100% mortgages (and more in some cases), this has meant that the value of the loan is, in many cases, equivalent to the property value when it was bought. Such properties can even be overvalued when compared to general market values. To give you an example, Mr. John Doe bought a property in 2006 for 200,000 euros (plus purchase costs), taking out a mortgage of 195,000 euros to do so. The property got repossessed in 2010 and since then the bank has been looking to recoup the full 195,000 euros that it is owed through the mortgage. However, the property is only realistically worth 150,000 euros in today's market. Therefore, the bank repossession property was not the great offer that the buyer may initially hope.

(2) The second important reason why repossessed Spanish properties had not offered great value is because banks had, in the recent past, preferred to hold the properties on their balance sheets rather than sell them for a large loss. This is because they appear as "assets" on the banks balance sheet, which helps to maintain the impression that the banks are in a stronger position than they really are. For example, the property given as an example above with a 195,000 euro mortgage would appear as an asset of the same value on the banks balance sheet. However, if it was sold for a cut price of, for example, 125,000 euros, the bank would show a loss on the deal of 70,000 euros against the loan. If the bank had lots of properties like this to sell, it could have a massively negative effect on the banks end of year figures, with many having to deal with enormous losses. It is therefore suspected that banks have been looking to avoid these losses by simply holding onto the properties rather than selling them.

Are prices of repossessed Spanish property likely to fall in the future?

Until recently, Spanish banks seemed to be waiting and hoping that prices recover sufficiently to be able to break even on their property portfolio or to perhaps mitigate their losses a little. However, there has been legislation by the Spanish government which has the intention to force the bank's hands in disposing of their property portfolios, in order to get the market moving more. Lately, there have also been signs that the banks are accepting the market reality. There are now a number of banks who have realised that they need to make a concerted effort to reduce the bank of properties on their balance sheets, and that as a bank they are institutions that are supposed to lend money and not be landlords.

This has had the welcome consequence for property investors of bringing a number of exceptionally well priced Spanish bank repossession properties onto the market. Consequently, investors who are frustrated with low returns on their savings from banks savings accounts are now deciding to look at the Spanish property market again. They hope that it will represent an opportunity to make their savings produce better returns than they are achieving in a savings account.

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