MARCH 2011 |
www.opp.org.uk WORDS | Clare Nessling Bargain hunting
Distressed property markets around the world may be producing some nice opportunities for bargain hunters, but if you’re not lucky enough to be a cash buyer, how easy is it to get hold of readily available fi nance? Is it really a buyers’ market out there? Clare Nessling of overseas mortgage specialists Conti takes a look at three of the biggest markets to see how things look for borrowers on the ground.
If you’d believed some of the reports about the property market in Spain over the last couple of years, you wouldn’t touch it with a bargepole. The unfortunate mix of the global economic downturn, over-development, and high unemployment has led to plummeting prices, with drops of 50% or more. A recent report by Spanish Property Insight says prices will fall in places for another two years, due to a surplus of homes estimated at between 700k and 1.2m. It’ll take years to clear the glut, and owners are dropping prices further to attract buyers.
Dramatically reduced prices and the opportunity to negotiate down even further with motivated sellers mean that it’s most certainly a buyers’ market. Spain has never been heavily involved in the sub-prime lending market, and families have not stretched their incomes as much. This means fi nancial institutions still have a healthy appetite to lend to non- residents, with mortgage rates starting from just 3.4% at present, and buyers can still generally get 65% mortgages. In some instances, where the property is owned by a bank, it may be possible to obtain an 80% mortgage. One of our partner banks is currently offering an 80% mortgage with payments deferred for three years, without interest rolling up. Interest-only deals are rare these days, so repayment loans are the norm, and most lenders will allow you the choice of either a fi xed or a variable interest rate. The maximum term of any mortgage is 35 years (to age 70 maximum) however this varies depending on the type of loan. The minimum loan amount is €30,000 with no maximum. Total mortgage payments and other fi nancial commitments must not exceed 35-40% of the buyer’s net monthly income.
Portugal is struggling with debt, but it has managed to escape a property crash thanks to tighter lending conditions and planning laws which have prevented over-development. Even so, there are still bargains to
be had. With distressed properties, you may be able to haggle further, but the bargains won’t last forever.
Although lenders have reduced their mortgage portfolios and fi xed rate deals have become rare, you can still borrow up to 70% of the value of the property (and 80% is possible) and rates are very
“Dramatically reduced prices mean that it’s certainly a buyers’ market”
reasonable, starting from just 3.5%. Mortgage terms are typically 25-30 years, the minimum loan amount is €50,000, and total mortgage payments and other fi nancial commitments must not exceed 35% of the buyer’s net monthly income. Loans are denominated in both euros and sterling. USA property prices have fallen by up to 70% in the past fi ve years. Mortgage rates also fell to the lowest level on record last summer, and have stayed low ever since, giving prospective investors an even greater reason to buy property there. No surprise, therefore, that the
USA has crept back up to fi fth on our hot spots list over the last year. Many experts believe prices have nowhere to go but up, so a home bought at today’s bargain prices could be a healthy investment over the longer term, as values appreciate slowly and steadily. When it comes to mortgage availability, there are, in theory, no restrictions to foreign nationals owning property in the USA and mortgages are
available for purchases up to 65% or 70% of the property’s value depending on the state. Most are on a repayment basis, and interest rates and loan terms tend to vary depending on the property type and exact location.
At the time of writing, deals range from 4.5% on a variable basis, from 4.75% to 5.25% for a three year fi xed rate, 5.25% to 5.5% for a fi ve year fi xed and in some cases for long term (30 year) fi xed rate you may currently achieve a rate of 5.75%.
The maximum term is 30 years, the minimum loan amount is $100,000, and total mortgage payments and fi nancial commitments can’t exceed 38% cent of the buyer’s gross monthly income. There are a few other things to consider. For example, is it advisable to take out a a foreign currency mortgage? The best way to decide is to think about how the property will be used. If the buyer will rent their property in Murcia through a local agent, the income
will be in euros, so it makes sense to take out a euro mortgage, as the rent received can be held in a Spanish bank account to make the payments, thus avoiding potential fl uctuations in currency. Prospective buyers should also bear in mind that bills don’t end at the asking price. Lawyer’s fees, IVA, local and national taxes, insurance, etc must all be met in the host country. In Spain, this tends to add a further 12% to the cost of acquisition, in Portugal it’s 10%, and in the USA it’s a bit lower at 5%. One of the biggest advantages
of taking out a mortgage is that the lender will do its own checks on the property, ensuring that a proper legal title exists, that the property is registered in the buyer’s name and that a valuation of the property takes place, as well as planning permission and building licenses. Clients should always take
independent advice from a lawyer who is not connected to their seller, estate agent or property developer.
DISTRESSED
FINANCE| 47
Check the small print | and advise clients of all the hidden costs when buying
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