Archive for the ‘Financial & Mortgages’ Category

 

May 6th, 2011

Euribor (12 months), the interest rate generally used to calculate mortgage repayments in Spain, rose to 2.086 in April, a change of +8.4% compared to the previous month, and the first time Euribor has been above 2% since February 2009.

On an annualised basis, Euribor is 70.3% higher than it was a year ago (see graph above), meaning higher monthly repayments for borrowers with mortgages resetting now.

Repayments for a typical mortgage (150,000 Euros, 25 years, Euribor +0.25) will go up by around 64 Euros per month, or 775 Euros per year. That will punish many a stretched household budget in Spain.

Interest rates over the last 20 years

Where will rates go from here? Upwards, most likely. The chart above, from property portal Idealisa.com, plots interest rates over the last 20 years. As you can see, we are in a period of exceptionally low interest rates (that are probably incubating the next crisis).

Story by Mark Stucklin

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September 17th, 2010

Euribor (12 months), the interest rate normally used to calculate mortgage repayments in Spain, has now risen for 5 consecutive months to its highest level in more than a year.

Euribor reached 1.421% in August, an increase of 3.5% on the previous month, and 6.5% higher than August last year.

As a result, borrowers on annually resetting mortgages will have to start paying more. Repayments on a typical annually resetting mortgage (150,000 Euros, 25 years) will rise by around 6 Euros/month, or 70 Euros/year, to around 594 Euros/month.

This is the first time that Euribor has risen on an annualised basis since October 2008, when the credit crunch first griped the markets. Interest rates then tumbled as central banks poured money into the banking system. Rates are now starting to rise as investors fret about a fiscal deficits and inflation.

Story by Mark Stucklin

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June 9th, 2010

Euribor 12 months, the interest rate predominantly used to calculate mortgage payments in Spain, rose 2% in May compared to the previous month, taking it up to 1.249%, the highest level it has been since last September. This is the first time since July 2008 that Euribor has risen for 2 consecutive months.

Despite rising for 2 months, Euribor is still not far above the record low of 1.215 it hit in March. It is still 24% lower than it was a year ago, and 77% lower than it was in July 2008. Because Euribor is still lower than it was a year ago, repayments on a typical annually resetting mortgage (120,000 Euros, 25 years, Euribor +0.8%) will fall to around €510/month, saving 24 Euros a month, or 288 Euros a year. If Euribor keeps rising, it won’t be long now before borrowers starting seeing their monthly payments increase, albeit modestly at first.

Euribor is an interbank lending rate based on interest rates set by the European Central Bank (ECB). Base rates are currently at 1% but the ECB is expected to put them up during the course of 2010. Even though base rates haven’t yet been touched, Euribor is starting to rise as banks get nervous about the state of the economy and lending to each other.

Story by Mark Stucklin

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May 12th, 2010

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, rose 0.8% in April compared to the previous month, taking it back to 1.225% where it was in February. This is only the second time Euribor has risen on a monthly basis since September 2008.

Despite the rise in April, Euribor is still just a fraction above the record low it hit in March. It is still 31% lower than it was a year ago, and 77% lower than it was in July 2008. Because Euribor is still lower than it was a year ago, repayments on a typical annually resetting mortgage (120,000 Euros, 25 years, Euribor +0.8%) will fall by around 41 Euros a month, or 420 Euros a year.

Many experts think that Euribor has fallen as far as it can and expect rates to start rising modestly. It won’t be long now before borrowers starting seeing their monthly payments rise, albeit a small amount. Euribor is based on interest rates set by the European Central Bank. Base rates are currently at 1% but are expected to rise gradually during the course of 2010.

New mortgage lending rose 8.5% in February compared to the same month last year, according to figures from the National Institute of Statistics (INE). That is the second consecutive month of growth in mortgage lending, a good sign for the market. On a monthly basis there were 54,813 new mortgages signed in February, up 6.2% compared to January.

The average loan value was 118,185 Euros, a fall of 4.6% compared to last year. Overall new mortgage lending was 6.478 billion Euros, up 3.5% on last year. The average interest rate was 3.97, 26.5% below a year ago, and 2% lower than January.

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April 18th, 2010

According to Contithe overseas mortgage specialis, an increasing number of British investors buying second homes in Europe are taking out euro-denominated mortgages in order to beat the poor exchange rate. This not only allows them to take advantage of cheap interest rates, but could potentially save them significant sums of money if, as experts predict, sterling appreciates against the euro over the next few years, as this will reduce the sterling cost of the property purchase.

Clare Nessling, Conti’s Operations Director, says: “A euro mortgage could be a good idea, even if you thought you didn’t need one. As you’ll only need to transfer money for your deposit and fees for now, it minimises the amount of sterling you have to exchange for the property purchase. Even if you’re lucky enough to be a cash buyer, it may be worth taking out a mortgage until the exchange rate improves, at which point you can pay it back, and ultimately reduce the price you pay for the property.”

There are a number of other benefits associated with euro mortgages. If, for example, an investor is going to rent out their property, having a euro mortgage means that their rental income and mortgage repayments are in the same currency, and they can therefore avoid exchange rate fluctuations.

A euro mortgage also allows them to benefit from European interest rates, which are often lower than sterling rates. Even a small difference could potentially save them a lot over the lifetime of the mortgage. The fees on some euro loans can also be substantially lower than on some sterling mortgages.

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April 17th, 2010

There’s a growing feeling of confidence amongst prospective overseas property buyers, according to Conti, the overseas mortgage specialist. It’s just had its busiest month for almost a year in terms of mortgage ‘go aheads’, the point where prospective buyers take their mortgage quotes through to the application stage. These increased by 48 per cent during March, compared with the previous monthly average. The proportion of prospective buyers progressing from the quote stage to the go ahead stage has also increased, suggesting that buyers are becoming more serious about their intended investment.

Despite the turbulence unleashed on the UK mortgage market by the global banking crisis, Conti says that overseas mortgage providers have a healthy appetite for lending to foreign investors. But a combination of factors, not just mortgage availability, are contributing to the attractiveness of this market. Falling property prices, in some cases by up to 50 per cent, and historically low interest rates are making it much more affordable, despite the current strength of the euro.

Clare Nessling, Conti’s Operations Director, says: “Falling property prices across many European destinations mean that the chance of owning a place in the sun may never be better, and historically low interest rates mean it’s become even more affordable for British buyers. The most popular destinations amongst our clients are still France and Spain, both of which come with easy access and good rental opportunities. Confidence is definitely growing, but there’s also an element of buyers snapping up bargains in traditional hotspots while they have the chance.”

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April 5th, 2010

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell 0.8% in March compared to the previous month, finishing at 1.215%. Once again, Euribor is at the lowest level on record, down 36% in 12 months, and 77% down from its all time high of 5.393% in July 2008. Thanks to the latest reduction in Euribor, repayments on a typical annually resetting mortgage (120,000 Euros, 25 years, Euribor +0.8%) will fall by around 41 Euros a month, or 500 Euros a year.

When Euribor rose a fraction in December I suggested that, after 14 consecutive months of falls, a change of trend might be in the offing. Despite a return to declines in January, February, and March, that still probably holds true. Flipping around is often consistent with a period of change.

Most of the savings from the fall in Euribor have already been had, and Euribor is unlikely to go much lower. Next month borrowers on annually resetting mortgages will hardly notice any savings, even if Euribor goes a bit lower. Euribor is based on interest rates set by the European Central Bank. Base rates are expected to remain at 1% for the first quarter of 2010, rising gradually after that.

New mortgage approvals rose 2.3% to 53,747 in January compared to the same month last year, after an annualised fall of 1.3% in December, showing there is not yet a clear trend towards improvement. On a monthly basis, new mortgage lending was up 12.3% in January. The average mortgage value was 112,839 in January, 7.6% lower than January 2009. Overall new lending was down 5.5% to 6.064 billion Euros.

Story by Mark Stucklin

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March 16th, 2010

David Beckham has the looks, the talent and – perhaps most importantly – the bank balance to make many green with envy. But it seems David Beckham’s good fortune where money is concerned improved when he signed for Real Madrid.

His transfer to the Spanish giants Real Madrid was not just a great move as far as his footballing career was concerned. In fact he left Manchester United just as the Spanish tax system was changed to benefit foreigners in an effort to draw more highly-paid professionals to these shores.

Designed to be part of the government’s budget for the 2004 financial year it came into operation on 1 January 2004 and basically allowed foreign employees to be treated as “non-resident” for tax purposes even though they were living and working in Spain. In simple terms a foreigner since then is entitled to cut his rate of income tax from a punishing top rate of 45 percent of his earnings to just 24 percent overall.

Former prime minister Jose Maria Aznar’s conservative government altered the tax laws to make it more attractive for foreigners to live here and to help companies that employ many workers from abroad — who are often paid high wages.

This law has helped the highly-influential and affluent bosses of most of Spain’s biggest football clubs as it leaves them with substantially lower wage bills and hence even bigger spending power to bring more stars to their domestic game.

Without a doubt, the law change was engineered to help football clubs to reduce their wage bills as it was reckoned if the players were paying much less tax, the cost to the clubs would be lower.

And though it might seem like these pampered prima donnas on the football pitch are having it all their way, it is not just a perk for the rich and famous. Sources from the Spanish Treasury Department emphasised that even though the new tax rules were principally brought in to help footballers, the tax change applies to anyone who is working here as a professional.

This tax provision is therefore available to all foreign professionals, from the executives with multinationals to researchers or any other salaried expat who works for a national company.

There are a few qualifications to which foreigners have to submit however:

  1. They cannot have worked in Spain for 10 years before – a measure to stop tax cheats
  2. They must work on the payroll of a Spanish company, though this can be a subsidiary of another multinational
  3. The application is be taxed as non-resident must be filed with the Spanish tax authority within 6 months of taking up the position

Finally, don’t think that it always beneficial to claim for this special tax treatment. Though the overall rate of 24 percent is very attractive and significantly lower than the highest rate currently applicable, it’s only of interest to high-income employees.

The downside of this non-resident regime is that the tax payer cannot claim the normal tax allowances and deductions applicable to resident tax payers so, as a general rule, it will only be of interest when the individual expects to earn in excess of EUR 70,000 -75,000 in a full tax year.

To make the correct decision about claiming the tax status or not, it’s best to speak to a tax advisor.

Story from Expatica

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March 10th, 2010

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell 0.6% in February compared to the previous month. Euribor now stands at 1.225%, the lowest level on record. Euribor is 43% down over 12 months, and 77% down from its all time high of 5.393% in July 2008.

As a consequence of the latest reduction in Euribor, repayments on a typical annually resetting mortgage (150,000 euros, 25 years, Euribor +0.75%) will fall by around 65 Euros a month, or 780 euros a year.

When Euribor rose a fraction in December I suggested that, after 14 consecutive months of falls, a change of trend might be in the offing. Despite a return to declines in January and February, that still probably holds true. Flipping around is often consistent with a period of change.

Most of the savings from the fall in Euribor have already been had, and Euribor is unlikely to go much lower. By March borrowers on annually resetting mortgages will hardly notice any savings, even if Euribor goes a bit lower.

Euribor is based on interest rates set by the European Central Bank. Base rates are expected to remain at 1% for the first quarter of 2010, rising gradually after that.

Story by Mark Stucklin

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March 1st, 2010

New mortgage lending in Spain is still very depressed, say the latest numbers from the National Institute of Statistics (INE). These figures are one of the few reliable housing market statistics we have, so it’s always worthwhile paying attention to what they have to say.

According to the latest figures, for December and therefore the whole of 2009, new mortgage lending fell again last year, by 22% in volume terms (to 653,173), and by 34% in value terms (to 76.8 billion Euros). These are the lowest levels in both volume and value terms since the INE started publishing this data series in 2003.

The number of new mortgages signed have been falling now for 3 years, and the value of new mortgages has been falling even faster. That means there is less money around to spend on property, which puts downward pressure on prices.

Mortgage lending has been falling in both volume and value for the last 3 years, though the rate of decline improved slightly in 2009. That means it is still falling heavily, just not by as much as last year.

Also, over the last 2 years, new mortgage lending has been falling more in value terms than in volume terms. That means that the average mortgage value is also falling, as borrowers take out smaller mortgages. The average value of new mortgages last year was 117,688 Euros, down 16% on 2008.

Why are people taking out smaller mortgages? Firstly, because the banks have tightened up their lending criteria, and now demand bigger deposits. But also because Spanish property prices are falling, so borrowers don’t need such big mortgages as before.

Peak to trough, new mortgage lending is down 51% by volume, and 59% by value, compared to 2006, when the market peaked. That is a massive decline in the amount of money around chasing property.

Story by Mark Stucklin

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