Posts Tagged ‘Invest in Spain’
Offshore Banking Moves Further Towards Tax Transparency
Few expatriates used to think twice about opening an offshore account. They provide a means of keeping Sterling outside the UK (useful to help prove your UK-non residency status); you can usually open and use them from anywhere in the world; interest rates were often higher than their onshore counterparts and they have also been popular for ‘tax planning’ purposes.
While the first two benefits listed above still apply, offshore banks do not necessarily offer the same interest rate advantages that they used to, and from a tax planning point of view the situation is very different today, with more developments on the horizon.
Following the collapse of Icelandic banks in the Isle of Man and Channel Islands, savers also began to question how safe their savings were, even through the jurisdictions did then implement or improve depositor protection schemes.
As a result of these changes, more savers today are considering alternative homes for their wealth.
Offshore banks were often used by people to hide capital and interest earnings away from the taxman. While they were legally obliged to declare worldwide income, the taxman had no means of tracing their account so there was little pressure to report it. Interest was usually paid gross and as offshore banks were not bound by the laws of your country of residence it was a case of ‘what the taxman doesn’t know about he can’t tax’.
The introduction of the EU Savings Tax Directive in 2005 served to change this. All Member States are required to operate automatic exchange of information on interest payments on accounts held by residents of other States. However, Belgium, Luxembourg and Austria were allowed to operate a withholding tax system with a view to change to automatic exchange of information after a transitional period.
The Isle of Man and the Channel Islands also operate withholding tax with the option for exchange of information. The withholding tax option effectively maintains banking secrecy. Although the interest earnings now have tax deducted at source, it still falls to the owner to declare it in his country of residence.
By this time next year this will have changed. In June the Isle of Man parliament agreed that from 1st July 2011 it will withdraw the withholding tax option and only operate automatic exchange of information – there will be no more banking confidentiality for EU residents. This was an endorsement of the commitment it made at the Organisation for Economic Co-operation and Development (OECD) Forum in June 2009. It was the first offshore jurisdiction to do this and the decision will impact on all expatriates who have not declared their Isle of Man accounts in their country of residence. Anyone affected by this will need to ensure that they have reported all their interest to their local tax authority … or bear the consequences.
Following quickly on the Isle of Man’s heels, on 28th July Guernsey’s Chief Minister announced that the jurisdiction will introduce automatic exchange of information, thereby abolishing the current option to pay a withholding tax and avoid disclosure. A government announcement said that Fiscal and Economic Policy Group has recommended to the Policy Committee that institutions in Guernsey should move to automatic exchange of information from 1st January 2011, and no later than 1st July 2011.
Following the announcement, other European jurisdictions which operate the withholding tax option, eg Switzerland, could come under increased pressure to follow suit. In any case, the withholding tax rates jumps from 20% to 35% next July.
High interest rates a distant memory
Currently interest earned in offshore banks is not generally more beneficial than onshore banks. The days have passed when they were in a position to offer high returns to attract investors.
With the money markets expecting the Bank of England base rate to stay low for some time, many offshore banks have cut the rates they offer on fixed rate bonds. In June, Michelle Slade of Moneyfacts warned that now that demand for savers’ money has eased, rates are being cut as banks readjust back to more normal margins. “Banks do not want to pay more than they have to on savings, so once a few cut rates, others will invariably follow,” she said.
While a couple of banks did increase rates on fixed term bonds in July, there are still very few attractive rates available to those who do not want to tie up their money for too long.
Who owns your bank?
Do you really know who owns the offshore bank you may be using and in which jurisdiction it is based? Since the credit crunch more countries have set up depositor protection schemes but you would need to check with the bank exactly what protection they offer. Banks are no longer considered to be 100% safe and in the event of another failure it could take a long time to receive compensation.
Offshore banks closing
At any time and without much warning offshore banks are being closed down, leaving savers with less options. In June Northern Rock announced that it is closing down its operation in Guernsey on 2nd September and Irish Permanent said it was shutting its Isle of Man branch by the end of the year. Other banks may follow as they retrench and reduce peripheral arms of their business. For example the Yorkshire Building Society is deciding whether to keep Yorkshire Guernsey open or not.
More and more foreign banks are closing their doors to US citizens as the US authorities take ever draconian measures to trace and prevent tax evasion. France started to close branches of French banks in tax havens from March 2010.
Many of advantages that offshore banks used to offer investors are gradually being eroded. There are investment structures available which can reduce tax liability, and offer the potential for capital growth and higher rates of return. Speak to an experienced tax and wealth manager like Blevins Franks for the most suitable tax planning and investment strategy to meet your specific circumstances.
By Bill Blevins, Managing Director, Blevins Franks
Were The EU Bank Tests Stressful Enough?
On 23rd July the results of the much anticipated stress tests on European banks were published. There were no surprises, with just seven out of the 91 banks tested across the 27 EU Member States failing. But does this mean that European banks are safely out of the woods? While the results will hopefully give the markets more confidence, there are concerns that the tests were too lenient.
The stress tests were carried out by the Committee of European Banking Supervisors (CEBS) in close cooperation with the European Central Bank (ECB). They tested Tier 1 capital ratios (the percentage of a bank’s equity capital to its risk weighted assets and a common measure of a bank’s resilience to shocks) under a benchmark scenario for 2010 and 2011.
The aim was to assess how resilient the EU banking system would be to another economic downturn and to what extent banks could absorb adverse movements in the sovereign debt and credit markets.
The regulatory minimum for Tier 1 capital is 4%, but for the purpose of the exercise it was set at 6%. Tests were carried out for the two-year period ending 31st December 2011 for an adverse scenario assuming a 3% deviation of gross domestic product for the EU compared to the European Commission’s forecasts cumulated over the period.
The seven banks whose Tier 1 capital ratio fell below 6%, with a capital shortfall of €3.5 billion, were Germany’s Hypo Real Estate, Greece’s ATE bank and five regional savings banks in Spain (Unnim, Cajasur, Diada, Espiga and Banca Civica).
There has been widespread criticism that the conditions were too easy.
A commentary released by Aberdeen said: “Arguably more banks would have failed had the CEBS adopted more strenuous modelling. Rather than a 3% deviation in the EU’s growth forecast they could have factored in a greater than 5% double-dip. Furthermore the CEBS assumed no sovereign default, with the worst case scenario a 23.1% haircut on Greek sovereign debt.”
Other analysts believe a 7% Tier 1 capital radio would have been a more credible benchmark. In this case Allied Irish Banks, Germany’s Postbank (one of its largest), Italy’s Monte del Paschi, Portugal’s Espirito Santo and Greece’s Piraeus would all have failed.
Credit Suisse pointed out that the tests based just on core Tier 1 would have been a more reliable test – and would resulted in the whole of the Greek banking system, plus many other lenders, failing.
The tests also assume that all States would contract at the same rate in a downturn, whereas the ‘Club Med’ states and Ireland would probably contract more if a downturn comes on top of their current fiscal tightening and debt-leveraging.
According to research by the Royal Bank of Scotland (RBS) at the end of May, Greece, Spain and Portugal had issued public and private debt worth €2.16 trillion between them, equating to 22% of the region’s gross domestic product.
Other responses to the stress tests were most positive. In its half yearly global outlook the Bank of America said they marked the “beginning of a return to normality”, with its chief European economist commenting: “Greece is staging an impressive fiscal turn-around. Spain has come through its July peak funding with flying colours. Europe can and will get its problems under control.”
Aberdeen’s communication concluded by saying that the European banking system appears reasonably well placed to withstand a conventional downturn… but the results tell us little about how banks would cope in more extreme scenarios. It called for greater disclosure by banks on the nature of their asset bases and liquidity profiles to help foster confidence in the banking system.
Confidence in European banks will not have been helped by an article entitled “Europe’s €30 trillion headache” published in The Telegraph on 29th July.
The article covers a new report by rating agency Standard & Poor’s (S&P) which reveals that European banks have amassed €30 trillion in liabilities and face a serious funding threat over the next two years.
With European banks, most of their mortgages and personal loans remain on their balance sheets and need funding. The three month loans offered by the ECB’s emergency lending effectively concentrated roll over risk for large amounts of debt. Banks will eventually have to refund these loans in a crowded market. S&P commented: “ECB loans have contributed to a shortening of liability maturities. The result is a growing funding mismatch for the European banking industry. This is happening as regulators prepare to introduce tougher liquidity standards. This is one of the greatest vulnerabilities of the industry”.
Around €1 trillion of debt in the Eurozone and Britain will become due by 2012. The stronger banks will cope, but what about the weaker ones?
Silvio Peruzzo from RBS told The Telegraph: “If down the line the markets start to question the debt trajectories of [Club Med] countries, the banking systems will be tested again. There is €1 trillion of private debt in Spain linked to just one asset: property.”
In its Financial Stability Report at the end of May, the ECB had also warned that Eurozone banks are now experiencing a second wave of writedowns. It predicted that they will suffer loan losses amounting to €195 billion over 2010 and 2011 – on top of the €238 billion written off in bad debts by the end of 2009.
None of this necessarily means that there will be more bank failures in future – but nor should we rule the possibility out completely. The European banking industry is not out of the woods yet.
Whether it is your bank accounts, insurance policies or your investments, you should always establish to what extent they are protected in the event of institutional failure. When it comes to your investments, try to use arrangements whereby your assets are not held on the institution’s balance sheet. This way your assets are segregated from potential creditors of the institution, giving you peace of mind that your capital is protected.
Seek professional advice from an authorised advisory firm such as Blevins Franks Financial Management Ltd on the arrangements which would provide the highest security for your wealth.
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
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
Britons missing out on £101M each year on international money transfers
Poor bank rates and high charges for foreign exchange transactions mean individuals need to be savvier when transferring money overseas. Research by Moneycorp reveals that Brits are potentially losing over £101m a year by not shopping around for the best deals when transferring money abroad. Furthermore, uncompetitive exchange rates and high bank charges are costing individuals a lot of money, despite a concerted effort by most to reduce their outgoings on luxury and even staple items.
David Kerns, Head of Personal Clients at Moneycorp, comments:
“While many individuals are visiting comparison websites more frequently, checking voucher code sites and consulting online consumer forums before purchasing goods in order to save money, this mindset doesn’t seem to have extended to foreign exchange. As a result, individuals are missing out on a very large sum of money they could be saving, by transferring funds overseas through a foreign exchange specialist rather than a bank. Not surprisingly, high street banks are cashing in as a result of this surprisingly apathetic approach.”
People buying or selling property overseas and people emigrating or repatriating will be particularly affected, though this issue will affect all Brits who are transferring money overseas.
People who own additional properties abroad and make regular mortgage and/or utilities payments will also be badly affected, as every transfer is open to individual transfer charges, in addition to exchange rates.
Data from the UK’s number one property website, Rightmove Overseas, reveals that the average house price in the Costa del Sol in Spain is currently €369,860.68. With a deposit of 10% (€36,986), using a high street bank rather than Moneycorp would cost an individual, on average, an extra £558 on their deposit alone.
An individual who wants to transfer a lump sum of £100,000 to an account in Europe would lose out on an average of €1,690 by using their bank for the transfer into euros.
David Kerns concludes: “Despite the UK coming out of recession recently, individuals shouldn’t be lining the pockets of their bank managers and it’s in their best interest to maximise their investments. Prior to making any overseas payments, we always advocate that people shop around to get the best rates possible.”
Credit: Moneycorp – commercial foreign exchange – www.moneycorp.com
Note:- Follow our link for more information: -
http://www.moneycorp.com/affiliates/microsite/index.cfm?agentid=10082123
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