Time to invest in Spanish property

Multimillionaire investor and entrepreneur Jim Mellon – who made a series of profitable investments in the 1990′s and has recently championed the cause of the growing biotech industry – hasurged Britons that now is the time to buy a property in Spain. Mellon told theDaily Telegraphthat thecurrent imbalance between the euro and sterlingis unlikely to continue for much longer, meaning that now is the time to act forBrits armed with pounds…

These warnings come on the back of the news that Spain’s Banco Popular hasbrought back the controversial 110 per cent mortgagein an effort to shift some of the thousands ofunsold and unwanted properties on their books. In the UK, the trend in lending has been to steer clear of thosenow-notorious zero-deposit, 100 per cent-plus mortgagesfollowing the financial crash of 2008.

However, Banco Popular has begun marketing such mortgages, complete with acashback sweetener up to 13 per centof the property’s value. The excess cash is intended to help cover thelegal and completion costs inherent to Spain, and maybe help with furnishing any new place.

The 110 per cent mortgage was apopular lending tool around a decade ago, and did bring some financial success to savvy investors who bought a fully financed property and were able to make a short-term profit. But in a slower, more sedate and sensible market –such as Spain’s right now– such mortgages risk leaving investors mired in negative equity, whereby theyowe more than their property is worth,and possibly always will.

In comparison, most mortgage lenders in Spainrequire a minimum deposit of 30 per cent, and will charge interest rates some two per cent above the European interbank rate ‘Euribor’. The catch, however, is that would-be buyers canonly choose properties from a narrow selection of homescurrently on the bank’s books – largely those properties that were repossessed during the crisis years.

“The bank wants to get rid of these properties,” a mortgage broker toldTelegraph Money. “It lent aggressively to developers before 2007, but when the credit crunch hit their developments didn’t sell. And when their valuations dropped, these properties ended up having mortgages higher than their value.”

Another broker remarked: “I would question why 110 per cent mortgages are being offered on these properties.Why has the property been repossessed?Is it because the original owner had personal cash-flow problems, or is it that the property is situated in a poor location and therefore could not attract the potential renters?”

It is a good point, and should serve as a reminder that the most desirable places to live and buy in Spain are rarely absolute bargains, butfair-priced corners of the Costa del Solwhere there is astable balance between supply and demand, which is reflected in the property prices.