Archive for the ‘Spanish Property Market’ Category
Paying Tax in Spain – Exploding the Myths
Many British expatriates arrive in Spain to live without fully understanding the local tax situation or any obligations that may remain to the UK taxman. There are quite a few myths around and unless you are properly informed you may get your tax planning wrong. This article looks at some of the common misconceptions and separates fact from fiction.
I am resident in Spain but complete a full tax return in the UK
► You become resident for tax purposes in Spain if:
- you spend more than 183 days in one calendar year in Spain (the days do not have to be consecutive), or
- your “centre of economic interests” is in Spain, or
- your “centre of vital interests” is in Spain, or
- your spouse is resident in Spain unless you can prove you are resident in another country.
► As a resident of Spain you are liable for income and capital gains taxes on your worldwide income.
► If you receive a gift or inheritance as a Spanish resident, you may be liable to Spanish succession tax.
► You must complete a Spanish tax return in respect of your worldwide income.
► A UK tax return only needs to be completed in respect of certain non-exempt income, such as rental income from UK property.
I am taxed at source on my UK assets and therefore I am not liable to tax in Spain on these assets
► You are entitled to double tax relief if you have income subject to tax at source in the UK which is also taxed in Spain.
► You can usually make arrangements for tax not to be deducted at source in the UK on certain types of income. This income would then be received gross and taxed solely in Spain.
I am taxed at source on my offshore bank accounts under the EU Savings Tax Directive and therefore am not liable to tax in Spain
► Paying withholding tax on offshore interest payments does not mean that you have no further tax liabilities on the same income in Spain.
► You still must declare such earnings on your Spanish tax return.
► If you pay the withholding tax and declare the income in Spain you are unlikely to receive any tax credit in Spain and could pay tax twice.
I can withdraw 5% of my UK/offshore insurance bond per year for 20 years without any liability to Spanish tax
► The 5% rule only applies to UK residents.
► As a Spanish tax resident, your offshore insurance bond will be taxed according to the Spanish rules.
There is no tax to pay if I have not taken withdrawals from my insurance bond
► The taxation of insurance bonds in Spain depends on whether the bond is ‘qualifying’ (issued by an EU country and compliant with Spanish regulations) or ‘non-qualifying’.
► Non-qualifying bonds are valued at 31st December each year and any increase in value from 1st January is taxed in full as income, even if there has been no withdrawal. The taxable income is taxed as savings income, so at 19% on the first €6,000 and 21% on any balance. For example, if an investment bond increases in value by 10% from €200,000 to €220,000 in any one year, the tax payable in Spain is €4,080 (€6,000 x19% = €1,140, + €14,000 × 21% = €2,940).
► Any fund located in a ‘tax haven’ (eg Isle of Man, Jersey, Guernsey) is non-qualifying and will receive this unfavourable tax treatment.
A withdrawal from a qualifying offshore bond will be taxed at 19% on the first €6,000 and 21% on any balance
► There is no tax to pay until a withdrawal is made from qualifying bonds in Spain.
► The taxation is very favourable because only the growth in value element is taxed, not the whole withdrawal. Using the above example, if you withdraw €20,000 you will only need to pay tax on roughly 10% of it. The taxable income is therefore €2,000 and your tax liability (at 19%) is only €380.
UK investment bonds are tax free in the UK for Spanish residents
► A UK investment bond is taxed at source in the UK.
► The tax deducted can be set against your tax liability in Spain, so you do not pay tax twice on the same income.
► If you have either a non-qualifying insurance bond or a UK investment bond it will be advantageous to transfer it to a qualifying, non-UK, bond.
I am a UK national and not liable to Spanish succession tax (SST)
► SST is payable if the inheritor or recipient of a gift is resident in Spain, or the asset being gifted or passed on death is situated in Spain.
► The tax rate can be as high as 34% for inheritances or gifts within the immediate family or higher for more distantly related recipients.
► Depending on which region you live in, there are usually deductions available according to the closeness in relationship between the recipient and the deceased, and other exemptions may be available.
► SST can often be avoided through use of an offshore trust.
Contact an experienced international tax and wealth management adviser like Blevins Franks for advice on tax mitigation strategies in Spain.
Note that the tax treatment(s) detailed above are current at the time of writing and may change in the future.
By Bill Blevins, Managing Director, Blevins Franks
Spanish Tax Rise to Target the Wealthy
Wealthy individuals living in Spain need to brace themselves for an unexpected tax shock. Spanish Prime Minister, José Luis Rodríguez Zapatero, has announced an imminent tax increase for “those who actually have more”. Whether this is the last of the tax rises or there are more to follow remains to be seen. It raises the importance of tax planning to minimise your tax liabilities and protect your wealth.
In giving warning of the impending tax rise on the wealthy, dubbed a “millionaire tax”, on 26th May Zapatero told parliament that it would affect only those with a “high economic capacity”. At the time of writing details have not been released on how the tax would apply or how long for.
It marks a clear u-turn by the government, which had only very recently rejected the idea of imposing a millionaire tax, with Zapatero explaining that the time was not right for such plans. While he now says that only the wealthiest will be affected, the middle classes will be concerned that he will also backtrack on his promise not to target them if the need arises.
Determined to save around €15 billion by 2011, the Spanish government earlier presented an austerity package, which includes a 5% pay cut for public sector employees and a freeze on pensions. Along with an already planned increase in VAT these deficit reduction measures will affect a broad section of Spanish taxpayers, but Zapatero feels that the better off should make a special effort. “In my opinion, any citizen feels that the effort should be greater from those who have more,” he told an EU news conference. It places a heavy burden on affluent taxpayers whom the authorities and public alike feel should pay for the bulk of the deficit bailout. Spain aims to reduce its budget deficit from 11.2% last year to 9.3% this year, 6% in 2011 and below the 3% EU threshold by 2013.
There has been some speculation about which taxes would rise, with an article in El Mundo on 19th May listing potential areas where the government could increase taxation.
Tax increase on income
The highest rate of income tax is currently 43%, applying to those earning over €53,407 in the current tax year. This tax rate could be increased for higher earners and tax bands potentially narrowed. Some reports had suggested a tax rate of 48% for those earning over €150,000.
The El Mundo article said that Ministry of Finance specialists, Gestha (Sindicato de tecnicos del ministerio de hacienda), had suggested targeting income over €600,000. 3.7% of taxpayers declare incomes above €60,000 a year which would not bring in an effective amount of revenue – so how large would the tax rise have to be on this group of high earners?
Wealth tax
Wealth tax could be another option for the government. The tax rate was effectively reduced to zero on 1st January 2008 by applying a 100% tax credit, leaving scope for this to be reversed. It is thought that the tax rate could be reintroduced for those having a net wealth in excess of €1.5 million, which could raise an additional €1,240 million annually.
SICAVs
An SICAV is a type of open-ended collective investment scheme and has been a controversial structure in Spain as this type of investment attracts a very low tax – as little as 1% – much lower tax than other investment funds. There are 440,000 investors in SICAVs in Spain, and although the government has rejected increasing the tax rate on these so far for fear that investors would leave the country for more tax advantageous jurisdictions, there is plenty of scope to raise the tax rate to collect more revenue.
In the 2010 Spanish Budget tax on savings income was raised to 19% from 18% on the first €6,000 and 21% on the excess.
Succession tax
The Institute of Fiscal Studies (IEF), an organisation linked to the Ministry for Economic Affairs, has carried out studies looking at a new tax on succession which would establish a common minimum tax across all of the autonomous regions. In recent years there has been a drop in the succession tax collected and this would go some way to shore up an historic deficit position in the autonomous communities.
Bank tax
The “bank tax” being discussed by the EU, otherwise known as the Tobin tax, would affect 295 Spanish financial institutions. Gestha estimates a tax here of five points could raise €1,285 million.
Excise and VAT
Even though tax on tobacco and fuel was raised last June, it could be hiked further, as well as an increase on alcohol.
The VAT rate is already due to increase from 16% to 18% from 1st July 2010. The reduced rate currently applied to services and food production will increase from 7% to 8%.
To limit the impact of the potential Spanish tax increases, wealthy taxpayers can often use effective tax planning measures to reduce their tax liabilities. This will protect your wealth giving you more to spend on the lifestyle to which you are accustomed and protect the inheritance you intend to leave to your family. A tax and wealth management specialist like Blevins Franks can advise you on the appropriate tax planning to suit your specific needs.
By Bill Blevins, Managing Director, Blevins Franks
Reduce Spanish and UK Inheritance Tax with A QNUPS
British expatriates living in Spain want to feel confident that their wealth will last them for the rest of their retirement and keep them in a comfortable lifestyle. Paying less tax is one way to protect your assets and legitimate tax planning methods can help with this. The latest arrangement available to British expatriates is QNUPS (Qualifying Non-UK Pension Schemes) which can reduce taxation in Spain –as well as UK inheritance tax (IHT).
Spanish tax savings which can be made with a QNUPS are:
- QNUPS can avoid succession tax in Spain as well as succession law.
- There is no Spanish tax on the transfer into a QNUPS.
- Funds within the scheme will grow free of Spanish income tax.
- If you make a withdrawal in the form of an annuity from the fund itself (as is usually the case), very favourable Spanish tax provisions may apply.
- There is no need to buy an annuity from an insurance company.
- You can withdraw up to 25% as a lump sum from a QNUPS. If a lump sum is taken Spanish tax is due, but is calculated only on the difference between the capital received and the contributions you made. The tax rate is 19% (on the first €6,000 of total savings income, including that from other sources) and 21% on the excess.
- The balance of your investment can pass onto your heirs on your death.
- A QNUPS can avoid wealth tax if a rate is reintroduced in the future.
No UK IHT with a QNUPS
If you are a British expatriate, you may be liable to UK IHT on your worldwide assets, even if you are Spanish tax resident. This is because liability to IHT is based on domicile and not residency.
Shaking off your domicile is not easy to do and usually takes at least three years and involves pruning your ties with the UK to the bare minimum. For example, you would need to sell your UK property or at least not have it available for use; close surplus bank accounts, credit and debit cards and other investments; sell your vehicles and cut down social and business connections in the UK. You need to be able to provide evidence that you do not intend to return to the UK, and establishing a permanent home in Spain and making a Spanish Will will help. Even if you do lose your UK domicile status, you would regain it as soon as you move back to the UK to live.
Many Britons who relocate to Spain do so without a thought of moving back to the UK. But the fact is that as the years go by many do for a variety of reasons, such as on the death of a spouse or partner or to be closer to grandchildren as they grow up. Returning to the UK means returning to a UK liability to IHT, currently at 40% above the nil-rate threshold of £325,000 per person or £650,000 for spouses and civil partners.
Investing in a QNUPS takes away the worry over whether or not you are still UK domiciled and liable to IHT, or whether you may later return to the UK. Assets in a QNUPS are immediately exempt for IHT – even if you are UK domiciled.
Other advantages of a QNUPS
- Investable wealth can be placed in a QNUPS. You cannot invest a UK pension plan directly into a QNUPS, although it is possible after you have been non-UK resident for five complete, consecutive UK tax years, as long as you go via the QROPS route first.
- There is no maximum age at which you can invest in a QNUPS.
- There is no maximum contribution.
- You do not need to have any earned income from an employment.
- Income and a lump sum can be taken from age 55, or can be deferred until the age of 75 (although if you take income earlier, the lump sum needs to be taken then).
- Assets can be invested and benefits taken in any currency of your choice, giving you the opportunity to remove currency risk.
- Income which is taken is drawn down from the fund, leaving your scheme assets invested and rolling-up free from tax.
A QNUPS provides an opportunity for flexible investing and choice. It doesn’t matter how old you are or how long you have been retired, investing in a QNUPS will give immediate tax benefits, especially for Spanish succession tax and UK IHT. Within QNUPS the funds will remain fully invested and will be subject to investment risk, in line with your investment objectives.
Blevins Franks is an established international wealth and tax management firm with full knowledge of the rules of taxation in both Spain and the UK. Contact an adviser such as Blevins Franks to learn how QNUPS can help you.
Note that the tax treatment(s) detailed above are current at the time of writing; these are based on our understanding of current UK and Spanish legislation and taxation practice, and may change in the future.
By David Franks, Chief Executive, Blevins Franks
Bank Debt Back In the Spotlight
The scenes of long queues of people outside Northern Rock have faded somewhat from memory. While not completely forgotten, they seem a long time ago now – it was in September 2007 after all. The following autumn then saw the collapse of Lehman Brothers and less than a month later Icelandic banks Kaupthing and Landsbanki stopped trading, a move which impacted on the many expatriates who had savings in their offshore branches.
We then lived in suspense for a while, wondering if any other similar banks could fail. Savers spread their money out over different banks to increase protection from depositor guarantee schemes, or moved money out of banks and into arrangements which provide protection from institutional failure.
As the credit crisis slowly lifted, fears about bank failures abated. The issue of bank debt, however, is now back squarely in the spotlight again thanks to the financial crisis in Greece and fears over contagion to Eurozone countries like Spain, Portugal, Italy and Ireland.
It is impossible to escape news about the crisis facing Europe and its currency at the moment. Everyday seems to turn up something new. One article which really stood out for me, though, was one published in the New York Times on 1st May 2010 entitled “Europe’s Web of Debt”. Using data supplied by the Bank for International Settlements, it highlighted the extent to which the “vulnerable” countries on the periphery of the Eurozone have become interwoven, all both owing money and being owed money to/from the others – and this is besides the vast sums owed to countries like Germany, France and the UK.
This creates the risk of a domino effect if one country defaults. For example, if Greece defaults on its debts to Portugal, how would the already struggling Portugal cope? Would the losses impact on its ability to repay its debts to Spain, one of the weakest economies in Europe?
For example, here are the figures relating to Spain -
Spain is owed:
By Portugal – $86bn
By Italy – $47bn
By Ireland – $16bn
By Greece – $1.3bn
Spain owes:
To Portugal – $28bn
To Italy – $31bn
To Ireland – $30bn
To Greece – $0.4bn
Spain also owes:
To Germany – $238bn
To France – $220bn
To the UK – $114bn
Portugal, Italy, Ireland and Greece are in a similar situation. Total debt is as follows -
Spain – $1.1 trillion
Italy – $1.4 trillion
Ireland – $867 billion
Portugal – $286 billion
Greece – $236 billion
As of 19th May 2010, in an unexpected move, Germany’s financial regulator BaFin prohibited short trading on banks, insurers and Eurozone bonds and banned credit default swaps (CDS) on sovereign bonds until 31st March 2011. It said that the “extraordinary volatility” of debt securities from Eurozone countries justified its action, as did the fact that CDS movements “could jeopardise the stability of the financial system as a whole.”
The move has echoes of autumn 2008 when, following the collapse of Lehman Brothers, the UK and US temporarily banned shorting bank shares to prevent speculators causing another major bank to collapse. It has led some commentators to wonder about the health of the German banking system. Last May BaFin had warned that the toxic debt held by Germany’s banks could blow up “like a grenade” when hidden losses from the credit crisis came to light, and feared write offs could exceed €800 billion. German lenders are now facing a second set of losses on so called “Club Med” holdings.
Tim Congdon from the International Monetary Research observed that in the second week of May, ECB data showed that there was a “major run” on Club Med banks, with €56 billion of interbank lending moving from periphery Eurozone countries to core ones.
The BaFin ban on short trading then triggered a capital flight from Germany to Switzerland. If money continues to move out of the core, affecting countries like the UK and France as well as Germany, Europe may soon find itself with depleted depository capital.
On 31st May, the European Central Bank warned that Eurozone banks face up to €195bn in a “second wave” of potential loan losses over the next 18 months.
We would be wise not to be complacent about how secure our savings are in the bank. While it is unlikely that a country like the UK or Germany would allow a major bank to fail, there is a level of risk with smaller banks and those in the weaker southern European countries. They do have depositor compensation schemes in place, but it would remain to be seen how long it would take for them to repay depositors if a bank failed.
One lesson we learned from 2008 was that every investor should ask their adviser, bank or life assurance company to prove exactly how they are protected, and to what extent, in the event of institutional failure. You can then understand the risks and decide accordingly.
Within Europe the level of investor protection from institutional failure varies significantly between each country and between the type of institution – e.g. bank, insurance company etc. The difference can be significant; protection can be as low as nil. Luxembourg, on the other hand, offers one of the best investor protection regimes – its state controlled protection law is designed to provide maximum security to investors without limit. If you have an investment bond issued by a Luxembourg regulated insurance company, your investment assets are completely protected from the failing of the insurance company.
In all cases you should seek professional advice from an authorised advisory firm such as Blevins Franks Financial Management Ltd.
Blevins Franks Financial Management Ltd is authorised and regulated by the UK Financial Services Authority for the conduct of investment and pension business.
By Bill Blevins, Managing Director, Blevins Franks
Home repossessions are on the increase.
The government has accepted to reform the code of civil procedure to raise the threshold for salaries that cannot be seized when executing a mortgage in order to protect low income families and follow through with a proposal from the IU-ICV parliamentary group.
With the new legislation, pending final approval, the minimum salary limit that will be untouchable even when someone’s salary is seized for failure to pay a mortgage will be raised to a level 10% above the minimum inter-professional salary. In other words, whatever happens, such people would be left with 696.60 euros per month. This figure is increased by an extra 20% for each additional family member under their responsibility.
In practice, this means that if a bank has repossessed your home but you continue to owe the bank money, it will only be able to “take” the part of the salary you earn each month over this amount. For example, if someone earns 1,200 euros per month, the bank will be able to take 504.40 euros and leave them with 696.60 euros. If that person has a family member for whom they are responsible, the bank would have to leave them with 836 euros and 975 euros if that person was responsible for two family members.
Remember that in Spain, if someone has their home repossessed and the sale at auction of the property does not cover the mortgage, they continue to owe money to the bank.
WHAT HAPPENS IF I AM UNABLE TO PAY MY MORTGAGE?
We are living in unprecedented times and there is tension in the air. No-one can be sure of anything anymore and what was once unthinkable (not being able to pay the mortgage) is unfortunately becoming commonplace nowadays. With the constantly rising Euribor and increasing number of redundancies, paying the mortgage is moving away from being simply a chore towards becoming impossible. When we ourselves reach that situation, what can we do?
If you are unfortunate enough to be one of those people being suffocated by their mortgage and who cannot meet their monthly repayments, it is essential you read this before taking any decisions. The first think you need to know is that stopping to pay the mortgage would be an incredibly bad idea; far from ending the problem, you would only be aggravating it. From the moment you first fail to meet a repayment, the bank will remind you it is obliged to collect your debt and you can rest assured it will do so eventually. It will start out nice and politely at first but, over time, will eventually move from words to actions. If the situation is not resolved within a few months, it will ask the courts to initiate a process to auction your house and guarantee itself the collection of the money it lent you.
Be warned however, the auction of your property does not always put an end to the problem. If the bank is unable to settle your debt, you will continue to owe it money. To settle your mortgage, it is not simply enough to hand over the keys to your home to the bank. That system, which has grown exponentially in the United States, is not how things work in Spain. Here, when you sign a mortgage, you are subject to personal repayment. In other words, if the bank cannot cover the debt you hold with it by selling the house, it will continue to demand repayment of the remaining amount and could even partially seize your salary until it has recovered all the money it lent you.
THE PROCESS STEP-BY-STEP
Month one
After the first missed repayment, the bank will call you to rule out the possibility that there has been a misjudgment or error on either part. If you meet the repayment, plus the delay interest for the corresponding days since the repayment was due, the problem will end there.
Between months 2 and 5
If you accumulate between 2 and 5 months of missed repayments, the bank will do everything within its powers to make you pay. If it fails, it will make an appointment with you to negotiate changes to your mortgage conditions. It will ask you for proposals to pay less and will study their viability in an attempt to reach an agreement. Extending the term of the mortgage or paying the interest only for a certain time, are the most commonly used alternatives. If you have already reached this stage, you will now have several months’ worth of delay interest to pay, meaning your debt will have grown.
During this period, an important event takes place at the bank: if you do not pay, the entity must make provisions for your debt on its balance sheet. In other words, it must reserve monies equivalent to your credit, in accordance with regulations from the Bank of Spain. That money does not leave the bank but is “frozen”, let’s say. At that moment, you become a problem for the bank, whereas before you were simply a pain.
Month six
After, approximately half a year and once the bank has made written demands without a response from you, the bank will then consider recovery of the loan through ordinary channels as difficult. Therefore, the entity will execute your mortgage, which is nothing more than asking a judge to activate the guarantees you all signed in front of a notary public when you signed the mortgage papers. It is still possible for you to resolve the problem at this stage by paying everything you owe plus the delay interest, which will be adding up all the time.
After a year or a year and a half
The judge will set a date for the auction of your property. Until almost the very day they auction your property, you can still pay the debt and the corresponding delay interest (which will be quite considerable by now) and put a stop to the process. If you do not, you will reach a critical and painful moment: your home will be auctioned and you will be forced to leave.
THE AUCTION OF YOUR PROPERTY
Once the auction of your property has been appropriately announced, the auction itself will take place. The property will be put out to auction for the sum you owe to the bank plus the interests and other costs that may have been incurred to date.
It is possible that the property will not sell at the first auction, meaning the process will be repeated and could even be put out to auction with no reserve price for people to make whatever offer they want. If it does not sell, the judge will tell the bank what to do but the bank could keep the property even though your debt has not yet been settled.
If the property does get sold during these process, one of two things may happen:
1) the money obtained is more than the debt plus the costs, in which case the bank will settle, collect the debt and return the surplus money to you.
2) the debt is not covered, in which case the bank will keep the money from the sale but you will still have an outstanding debt to settle with your bank and it will come after you, and more importantly, after your guarantors should you have made use of any when you signed your mortgage. In this process, the judge must determine the best course of action to settle the outstanding amount. A decision may be taken to seize other assets that you own, those of your guarantors, part of your salary, etc. The objective of the bank will be to recover the money it lent you and that it was unable to recover through the sale of your home.
Credit: Fuster & Associates
The Bank de España wants to reduce banks’ property portfolios.
The Banco de España (bde) has asked a large number of banks to undertake an impact test for their residential properties and other real estate assets in order to draw up a new strategy, based on provisions whose purpose is to ensure banks and savings banks sell their residential real estate as soon as possible.
The regulator is in favour of banks offloading their residential properties as soon as possible, and is considering increasing the pressure by raising the minimum amount banks and savings banks must hold in provisions for property assets. In contrast, it could ease the rest of the provisions, such as default ones.
For some time now the idea that the Banco de España may raise the minimum required provision to 30% of a property’s value, if it has been held by the bank for over two years, has been circulating in the market. This is something that some banks already do, but the Banco de España has sent the test s in order to decide whether or not to make the provision obligatory. The bank is also considering raising the provisions for longer-term and/or problematic assets to over 30%. At the present time banks must set aside 10% of a property’s value during the first year it is on the bank’s books and 20% in the second year.
The final objective of all the measures is to penalise the banks which have real estate on their books to encourage them to sell the properties, as this is one of the issues that generates the most distrust and lack of confidence in the banks´ soundness. According to bank data, the financial sector has 165,000 million euros in problematic real estate assets, of which around 60,000 million are for repossessed real estate or land.
Credit: Fuster & Associates
Note: If this is the case, then will we see the banks doing more to avoid repossession of properties or will the banks start accepting much lower offers on properties, in order to reduce their substantial portfolios? Either will do, the former, if you are a home owner under pressure or the latter for an investor. However, even with the multitude of properties available, why is it that first time buyers still cannot get a foot on the ladder? Perhaps the government in co-operation with the banks should be looking at that sector to move the property market along.
Government cuts Notary fees, making it fractionally cheaper to buy a home in Spain.
The government has announced a 5% reduction in notary and registry fees on property deeds as part of a package of measures to reduce the deficit and stimulate the economy.
Notaries and Registrars are screaming blue murder at this attack on their earnings; whilst house buyers will hardly notice the difference the savings are so small.
How big a saving will that 5% reduction in notary and registry fees give the average home buyer in Spain? It will be between €35 for a property costing €150,000 and €45 for a home costing €300,000, according to calculations done by Idealista.es, a Spanish property portal. Almost insignificant then.
Notaries and registrars are furious. The latter’s’ fees are already down by 50% thanks to the slump in property transactions.
Credit: Mark Stucklin
www.spanishpropertyinsight.com
Note: From a buyers point of view they are unsympathetic but in order to assist in the clearance of the back log of property, the consensus is why increase property tax from 7% to 8% on 1st July, when in fact it would be better to scrap it and look elsewhere for savings!
The Spanish property Market is at an Impasse, says an expert.
What does the immediate future hold for the Spanish property market? Stagnation or another lurch downwards, according to one industry leader.
“The property market is under observation. Either we have touched bottom, or we are going to fall again.” That was Juan Fernández-Aceytuno, Managing Director of Sociedad de Tasación, one of Spain’s leading appraisal companies, speaking at the launch of stvalora.com, a new online valuation service.
Almost 4 years since property prices peaked, the market is still stuck in what some call a correction. “We are at an impasse, with everyone waiting to see what happens to the market. Few people will dare to say if we have touched bottom or just a bottle neck before falling again,” said Fernández-Aceytuno.
No rebound in property prices.
A rebound in prices is the one thing that Fernández-Aceytuno confidently rules out, despite the forthcoming increase in VAT that will put up the price of new homes. If anything he is more worried about a potential increase in interest rates forcing house prices down further.
Fernández-Aceytuno also points out that house prices tend to rise in good times and fall in the bad.
“Nobody has a crystal ball when it comes to prices, but at times when disposable incomes and credit have risen, prices have risen, and conversely, when these have fallen, so have prices.” In Spain today incomes are falling, there are more than 4 million unemployed, credit is scarce, and there is no sign of the situation improving anytime soon.
The Spanish property market recovery, when it comes, will be lead by a change of attitude in the sector, argues the boss of Sociedad de Tasación. “What the sector really needs is to regain trust and credibility,” he said, whilst admitting that some companies inflated valuations for mortgages by 15-20% during the boom. With prices down around 20%, that leaves some borrowers sitting on losses of 40%. “That’s what I would call suffering a bubble.”
Credit:- Posted on May 21, 2010 by Mark Stucklin
Property Market
Mortgage floor: 29% of mortgages have a minimum interest rate.
29% of mortgages taken out by Spanish families to finance the purchase of their home are subject to a mortgage “floor”, which means that when interest rates fall to a certain level, usually to below 3.1%, they do not benefit, according to a study drawn up by the Banco de España at the request of the Senate.
The Banco de España recognises that financial institutions use theses clauses to recover “the minimum costs generated by these products when interest rates change sharply”, and therefore it believes that “they are a factor which promotes financial stability, something which is in the public interest”. For this reason it affirms that “as long as the clauses are written in a clear, understandable way, they must be considered to be freely agreed upon by the parties” and “it would not be appropriate to classify them as unfair.”
The study found that 13 of the 49 banks which took part in the study systematically include this type of clause in their mortgages. Of these, 4 do not include a mortgage “ceiling” to protect clients against interest rate increases. Furthermore, the others admit that “in the majority of cases they do not provide individuals with effective protection against the risk of a rise in interest rates, as the mortgage ceilings are very high.”
Credit:- www.spainsolicitors.com
Fuster & Associates
The Spanish Property Market
The Spanish property market has fallen victim to the current recession and taken with it many of the big building names in Spain who have gone into administration. Thousands of agencies have closed but hopefully illegal sellers who took advantage of the boom years will have disappeared also, they are no loss to an industry which is still reeling from bad publicity caused by illegal builds, land grab and corruption. That said, many of these matters are being dealt with and Spain has been addressing these problems for some time, with new legislation covering the building industry and the EU is taking an active part by investigating the plight of buyers caught in financial and legal nightmares over homes they bought in good faith.
During the boom years, thousands of homes were built and sold as people rushed to own a second holiday home but gave little thought to what and where they were buying, how much they were spending and how it would all be paid for in the future and many were blinded by the glossy pictures and over emphasised spiel of the big agencies that herded them into large urbanisations. Now we see hundreds of ex-pats returning home as the crisis has crushed their dreams, interest rates eroded their savings, losing jobs they thought they had for life and crippled by large mortgages and without the means to pay them, many have had their homes repossessed.
However, for many their life in Spain continues, they are happy and take an active part in the community and town activities in which they live and would never dream of returning to the UK or country of birth.
There are of course properties which have been slashed in price to sell them but what you must ask yourself is, why? It could be that the owner is so desperate that they will take anything to return home but it may be because they bought in the wrong location to begin with? If that is the case, you may buy the property very cheaply and be happy with that but what if you want to sell it again yourself? Will you be able to or will you be in the same plight as the current seller?
Many people still want to buy property in Spain and now is the time to buy before the VAT increases in July and there are many bargains to be found and in the right place to buy.
No, they will not be detached villas with sea views for 50,000 euros, they are piped dreams but there are properties now being sold at thousands of euros below market value, in nice areas near the sea and are good long term investments for when the market recovers. The Spanish are searching along the coast for such bargains as they are well aware that the market will recover and prices will increase, so are jumping on the bandwagon now.
Some advice:-
- Don’t be deceived by glossy brochures and the hype of property fairs.
- Research areas as much as you can on the internet or your local library.
- Do come to Spain and look for yourselves without the pressure of inspection trips.
- Never exceed your budget.
- Always use a solicitor.
- Choose an accredited agent, who will assist you throughout and after the purchase. We recommend WiseBuySpain.com
Editor 13 April 2010
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