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Five Things That You Need To Know About Spanish Bank Repossession Properties!
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Here at Ideal Spanish Property, we are receive many enquiries every month from investor clients who are looking for advice on bank repossession properties on the market in Spain. Many investors are unhappy with the performance of their bank savings accounts, or property investors who think that there is an opportunity to make a better rental or resale yield with a bank repossession property than a standard resale property. There are also many clients still looking for retirement or holiday homes in Spain, and who enquire about bank repossessions to ascertain whether they represent better value for money or not. In this article we will attempt to answer the most common questions about Spanish bank repossession properties and to demystify this method of investment in Spanish property.
1. Many factors cause properties to be repossessed, but these include some reasons that you may not have considered, such as differences in global exchange rates.
Due to the global economic crisis & credit crunch, which began in late 2007 and went on to become more severe in the following years, 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 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 to make a profit, 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 effected 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 an even larger number of bank repossessions.
2. There are can be different types of purchase processes between bank repossession properties and standard resale properties.
If a property has already been repossessed by the bank, and the title deeds have been legally transferred to the lender, then there is no difference between this and the purchase process of a standard Spanish property. The transaction will proceed in the same way, with the title deeds (and the mortgage if one is required) being signed in front of a Spanish public notary. However, if the property has not yet been repossessed by the bank, but is going through the courts, it cannot legally purchased once the process has started. This can be very lengthy and it is virtually impossible to put a final time scale to it, as it depends upon the representations that the owner makes to the court and, indeed, whether the person who is in debt to the bank is even contactable. You should make sure that you are kept fully informed as to the status of the bank repossession property so that you are aware of whether the process will be relatively quick, or you will face a long wait. Please read our article concerning the purchase process for Spanish property for more general information on what you can expect from the normal conveyancing process in Spain.
3. Some types of properties are more likely to be repossessed than others.
In general there are more apartments being repossessed in Spain, especially in coastal areas, than any other types of properties. This is because during the construction boom of the late 1990's and early 2000's, most of the properties built in Spain by developers were apartments. In the cases where the developer has entered into bankruptcy or administration (suspension de pagos), then usually the bank who financed the development from the beginning would take possession of the properties.
As a consequence, relative to apartments, there are fewer repossessed villas for sale in Spain. Moreover, you should consider that those villas that are repossessed are often in a poor condition because there is nobody maintaining the vacant property. In contrast, if a new build apartment or townhouse development gets repossessed, there is still an active community looking after the gardens, swimming pools and facilities, so they tend to maintain a more presentable appearance. Furthermore, the fact that apartments almost always form part of an existing community means that there are neighbours watching over the properties in the community, so it is less likely that they will be vandalised, even if they are vacant.
We tend to advise our clients that when looking for a bank repossession property, it is a case of looking for the opportunity rather than the area. This is because it can be difficult to find bank repossessions if a client is totally set on purchasing in a particular area of a town or even in a specific community. Quite simply, if there are no bank repossessions for sale, then the opportunity may not exist in that area. However, if a client is prepared to be open-minded about where they want to purchase their property, then they can browse our catalogue of Spanish bank repossession properties for sale and hopefully find an investment opportunity that suits their requirements.
4. It can be easier to get bank financing for a bank repossession property than a standard resale property.
In theory it should be less complicated to get a mortgage on a bank repossession property than a "normal" resale property, depending upon the percentage of finance that you are looking for. As the banks are keen to move the properties from balance sheets, then it should be possible to get financing off the banks, and many agents are advertising that 100% mortgages are available on bank repossession properties. However, any mortgage is "subject to status" and dependant upon your ability to pay back the loan secured against the property, and in this respect bank repossessions are no different. In our experience, however, our clients have had more success recently with achieving mortgages with bank repossessions than "normal" resale properties. Nonetheless, the old saying that "Cash is King" is a very good adage nowadays; clients who already have their finance arranged in their home country, or who are cash buyers inevitably get the best deals.
5. Until recently, Spanish bank repossession properties did not represent particularly good value for money.
Previously, banks were reluctant to reduce the price of Spanish bank repossession properties as they were generally looking to recoup the whole mortgage amount outstanding on the Spanish property. Many of the purchasers who defaulted on the loans had taken out 100% mortgages (and more in some cases), which meant that the value of the loan was, in many cases, equivalent to the property value at the time it was bought. Such properties were often overvalued when compared to the general property market and since the onset of the global economic recession the value of these assets has decreased even more. However, with an increasing amount of properties coming up on the market, it did not take the Spanish banks long to realise that in order to compete with non-bank repossession properties that are also for sale they would have to take a hit on the purchase price.
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 recent Spanish legislation intended to lower the price of bank repossession properties which has the intention to force the bank's hands in disposing of their property portfolios, in order to move these vacant properties and to reinvigorate the property market. Over the past year we have seen banks selling repossessed properties for as much as 50% less than the original valuation of the property. Banks prefer to have cash assets, as this not only balances the books and keeps their shareholders happy, but they are fully aware that an empty property runs the risk of falling into disrepair or being overtaken by squatters, and thus losing its value even more.
It now seems that lately Spanish banks are showing signs that they have accepted the market reality, and are more willing to sell at a loss. They have realised that they need to make a concerted effort to reduce the number 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 outcome 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 their bank 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. Investors are also worried about leaving their millions in a bank account and what would happen should Spain default and exit the Euro. According to the Telegraph, last year saw more than €48bn of deposits being withdrawn from Spanish bank accounts as customer fears over the safety of their money held at Southern European lenders escalated. At Ideal Spanish Property, we have seen recent trends that people who have savings are now preferring to put their money into bricks and mortar, instead of leaving it in a bank account.
Ideal Spanish Property has maintained a close relationship with some of the largest banks in Spain and we are proud to say that if you are looking to purchase an apartment or villa that has been repossessed by the bank, then you’re in the right place. We have a very specific portfolio of bank repossession properties and our aim is to match these properties to our investor clients. If you have seen a property that you like which is also a bank repossession, then our advice is to act quickly as these properties are usually snapped up within a matter of weeks. Spanish banks prefer cash buyers, however, if you are not a Spanish resident and you need to apply for a mortgage in Spain then you must bear in mind that Spanish banks are unlikely to grant a mortgage of more than 80% of the price of that property, at the very most, and all mortgages are subject to status. We advise that you have your finances in order before you put in any offers and have a deposit of at least 20% if you are serious about purchasing a bank repossession property. You have to consider that if you are buying a property that is significantly below market value then there will be others wanting to purchase that property too so it really is a case of the early bird catching the worm.
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