Posts Tagged ‘financial crisis’

 

April 20th, 2010

Buyers are back looking for holiday homes. Mortgage broker Conti Financial Services, which specialises in overseas mortgages, reports a big increase in mortgage applications and the busiest month for over a year.

The foul winter in the UK has probably helped concentrate buyers’ minds on that place in the sun and mortgage applications rose by 48% in March compared with the previous monthly average.

European banks have not suffered as much from the sub-prime crisis as UK mortgage lenders and Conti says that overseas mortgage providers have money to lend to foreign investors. ‘Falling property prices across many European destinations – in some instances by as much as 50% – 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,’ says Clare Nessling, Conti’s operations director.

‘The most popular destinations amongst our clients are still France and Spain, both of which come with easy access and good rental opportunities,’ she says.

Nessling reports bargain hunters out in force in Spain where oversupply of properties and fears about planning permission have left the banks holding repossessed properties which are being sold off. ‘Confidence is definitely growing, but there’s also an element of buyers snapping up bargains in traditional hotspots while they have the chance.’

So where will you find a bargain? ‘Those European countries yet to record their first quarter of growth since the credit crunch include Spain, Denmark and Ireland where an oversupply of stock is holding back prices,’ says Liam Bailey, head of residential research at international estate agents, Knight Frank.

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February 23rd, 2010

The International Monetary Fund said Thursday that Spain’s fiscal challenges are not as severe as those faced by Greece, reinforcing the message that Madrid has been delivering to the world’s financial markets.

In its first official comment on the matter, the IMF told investors that Spain should not be placed in the same boat as debt-laden Greece.

“Regarding Spain, we do see differences between their circumstances and those of other parts of the euro area,” IMF spokesman David Hawley said, dismissing the idea that Greece’s financial woes could spread beyond its borders.

Hawley said Spain has robust economic statistics and institutions with a solid track record and credibility, adding that the Iberian nation also had strong fiscal starting positions prior to the global recession.

That assessment echoed the message Spanish Economy Secretary Jose Manuel Campa has brought to Paris and London and plans to reiterate at closed-door meetings with investors in New York and Boston.

Campa said in an interview with Efe-DowJones that when investors see that the diagnosis of the situation has been correct and that the measures that the Spanish government has taken are adequate, “it will generate a lot of reassurance.”

Spain’s investment waters were calmer Thursday after the government sold a 5-billion-euro 15-year bond the day before in an auction that was oversubscribed, proving – experts said – the government’s ability to raise financing.

The country paid a risk premium of 85 basis points in the bond issue over the benchmark swap rate. By comparison, the risk premium demanded by holders of 10-year Greek bonds over Germany’s 10-year benchmark bonds rose Thursday to 328 basis points.

Hawley stressed Thursday that Greece’s budget deficit woes date back to before the global recession, while Spain had a surplus equal to 2 percent of GDP at the start of the financial downturn.

Story from Herald Tribune

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December 2nd, 2009

Once a star performer in Europe’s 11-year old monetary union, Spain has become the wayward laggard. Growth data last week showed the Spanish economy – hit badly by a property market collapse and soaring unemployment – stuck firmly in recession in the third quarter, while the eurozone as a whole grew 0.4 per cent. The rollercoaster ride might suggest the European Central Bank would have difficulty calibrating policy steps to suit Spain and the other 15 eurozone countries.

During the economic crisis, Miguel Fernández Ordóñez, Spain’s central bank governor since 2006, has rarely given interviews. Talking to the Financial Times in the library of the bank’s plush Madrid headquarters, he strikes a distinctly cautious tone, but his messages are not so different from those of his colleagues in Frankfurt.

After the collapse of Lehman Brothers investment bank last year, the ECB cut its main interest rate farther and faster than ever before, to a record low of 1 per cent. He hints this monetary policy stance will remain for some time. “It is clear that any increase in [interest] rates is off the screen. The markets do not expect any change before the second half of next year,” he says.

He agrees, however, that with financial markets normalising, the ECB’s governing council should plan to remove emergency support, such as offers of unlimited liquidity for up to one year. “My reasoning is that those measures were exceptional because the markets did not work well. When the markets are working well, we should take them away because otherwise the markets will never work perfectly, ever. Support should be exceptional.”

Jean-Claude Trichet, the ECB’s president, indicated this month that the “exit strategy” would start in December, with the ending of one-year liquidity offers.

But is Spain ready for the start of such an ECB strategy, given its weak growth prospects? “Well, it’s ready for recovery,” Mr Fernández Ordóñez replies, “because recovery in Europe is the best news for Spain.” Some 70 per cent of Spain’s exports go to the eurozone, he points out. His biggest concern is that Spain pushes harder to bring public finances under control and increase labour market flexibility.

From one perspective, eurozone membership acts as a straitjacket in a downturn because devaluation is not an option. Worse, the euro is strengthening. Mr Fernández Ordóñez does not see things that way, however. “Of course you are right that we cannot devalue, and what does it mean? This means that we have to do more structural reforms so that you have the advantages [similar to those] of devaluing.”

As such, he is happy to see Spanish consumer prices falling faster than elsewhere. “Deflation in the euro area would be a disaster. But if you don’t have deflation in the euro area and we have a negative inflation differential in Spain compared with the rest of the eurozone, that would be the best thing. Reducing prices and regaining competitiveness is what we have to do.”

Story from FT.com

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August 31st, 2009

The number of new mortgages signed in June rose by 7.2% compared to May, suggesting that the mortgage market may be starting to recover from the credit crunch. Optimists argue this will breathe life back into the property market.

On a year on year basis, however, new mortgages signed in June were still 10.8% below the same month last year, showing that the market still has some way to go before it recovers to former levels.

These figures, from Spain’s National Institute of Statistics, also reveal that accumulated new mortgage signings were down 31% in the first 6 months of the year compared to the same period last year.

By value, new mortgages in June fell 6% year on year, but rose 4% month on month.

The average value fell 10% year on year to 142,700 Euros, but was up 5% on the previous month. In some regions, especially those where property prices are highest, the fall was more drastic. Average mortgage values fell 19% in Madrid, and 25% in Barcelona.

Average mortgage values are also down heavily in popular holiday home destinations like Malaga (Costa del Sol), down 24.5%, and The Balearics, down 30%.

The average interest rate was 4.47%, 13.8% lower than a year ago and 2.9% lower than the previous month. This figure shows that banks are passing on only a fraction of the fall in base rates to customers. Base rates are down 70% compared to June last year.

The average monthly mortgage payment has fallen from 845 Euros in June 2008, to 702 Euros today.

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July 21st, 2009

Spain’s central bank has bowed to pressure and relaxed provisioning rules for lenders in a move that could help some banks avoid losses next year and allow others to strengthen their capital ratios.

The Bank of Spain yesterday confirmed that it had advised all banks that they would no longer have to set aside the full value of high-risk mortgage loans – those for more than 80 per cent of a property’s value – after two years of arrears.

Instead, they would only have to provision for the difference between the value of the loan and that of 70 per cent of the mortgaged property. In the case of a mortgage for the total cost of a new home, for example, banks would provision for 30 per cent of the property’s value. But the central bank also warned banks to ‘update’ their Spanish property valuations.

Although the regulator has long recognised the ‘residual value’ of mortgaged properties at 70 per cent, its schedule of provisioning for riskier loans in effect forced lenders to assume that a 100 per cent mortgage was irrecoverable after two years of nonpayment, against six years for most other credits.

The assumption was typical of a regulator whose tough stance on off-balance sheet investment vehicles saved Spanish lenders from the worst effects of the US subprime crisis. Its insistence on precautionary bad loan provisions has also allowed them to withstand the collapse of the domestic housing market about two years ago.

But the non-performing loan rate for the financial system has almost quadrupled in the past year, to 4.27 per cent of total assets, and is much higher at some of the caja, or weaker savings and loans banks.

Recent estimates put the value of property repossessed or swapped for debt by Spanish banks at about €16bn ($22bn, £14bn).

In April, the Bank of Spain took over a caja based in the Castilla La Mancha region. Another two recently announced they were in merger talks. The government, meanwhile, is setting up a bank restructuring fund which it says will provide up to €90bn for rescue operations. Lenders have welcomed the new provisioning criteria.

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July 16th, 2009

Spain’s economy is likely to have shrunk ‘substantially’ less in the second quarter than in the first, though growth will remain negative to the end of the year, the economy secretary was quoted on Monday as saying.

‘We don’t have a precise estimate, but we believe that the fall (in gross domestic product) will be substantially less than in the first quarter,’ Jose Manuel Campa said in an interview with the financial daily Cinco Dias.

‘Until the end of the year we will continue to have negative growth rates, but increasingly smaller ones.’

Spain’s economy shrank 1.9 percent in the first quarter from a quarter earlier, its sharpest contraction in half a century – most acutely felt in the Spanish property market. Savings bank foundation FUNCAS said on Monday the worst may be over.

‘Available data point to a less abrupt contraction in the second quarter than the previous two quarters,’ Funcas said. Talk of economic recovery may be premature, the foundation said.

‘The worst may be over, but that doesn’t mean the economy will recover soon, just that the recession will be less intense,’ Funcas said.

The Spanish economy would shrink by 3.6 percent in 2009 and 0.6 percent in 2010, according to consensus figures published by the foundation on Monday.

The Spanish government has launched one of the world’s largest economic stimulus packages in relative terms which has inflated a ballooning public deficit likely to rise above 10 percent of GDP this year from 3.8 percent in 2008.

Campa reiterated the government’s target to cut the deficit to below 3 percent in 2012 in line with European Union recommendations.

‘It is our commitment to the European Union and we meet our commitments,’ he said. ‘Obviously, it is not easy, but it is feasible.’

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July 16th, 2009

Results for the 2009 International Survey conducted by primelocation.com show that 70% of visitors to primelocation.com/international are actively looking to buy an overseas property, despite the current economic uncertainty.

Of all respondents, 28% said that they are unaffected by the current economic situation, 22% who had delayed their plans because of the economic climate are now back in the market and hope to find a bargain, while 10% said that they are checking out the market but will not proceed just yet.

Ann Wright, International Business Development Manager for primelocation.com, says ‘This is very clear indication that people have not let go of their dreams of owning a property abroad. Indeed, it is encouraging that people are coming back to the market, possibly because of recent press reports of falling property prices across Europe.’

The primelocation.com 2009 International Survey also monitored the countries the portal’s visitors are most interested in buying in. France took top spot with 25%, Spain came second (16%) and was followed by Italy and Portugal which tied in fourth place with 11% each. The United States, Cyprus, Greece, Switzerland, Turkey, Canada and the UAE took the rest of the top 10 spots.

‘It is interesting to note that over a quarter of all respondents currently own/rent a property in France and interest in the country, which has always been the first choice amongst Brits, has remained fairly stable at 25% since 2008. Spanish property and Portuguese properties have increased in popularity since 2008 as people respond to the reports of falling property prices.’

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April 15th, 2009

An article in ‘El Mundo’, one of Spain’s leading news papers, suggests there may be signs of recovery in the Spanish property market, in one of the first positive articles on the outlook for the market since the crisis began.

“It appears to be the beginning of the end of the worst period for property sales since the crisis began,” says the article. Pointing to encouraging signs that real estate markets may have bottomed out in the US, the UK, and France, the article suggests that Spain may be part of the trend.

The optimism also comes from a new report by Gonzalo Bernardos, a property market expert and professor of economics at the University of Barcelona, who argues that Spanish property market will come back to life this year, after a dismal 2008.

“There are five key reasons for saying that there will be more home sales in 2009 than there were in 2008,” writes Bernardos in his report. “Interest rates are lower; house prices have fallen back to their 2003 levels; banks are lending more; investors are coming back; and many people who were thinking of renting have decided to buy.”

Demand for housing is tempered by the cost of mortgage borrowing. With interest rates declining, Bernardos expects sales to pick up. “There is a fundamental variable,” explains Bernardos. “People buy homes in response to mortgage costs, which have gone from rates of 6.25% in September to 3.25% today. We are talking, in general terms, of a fall in mortgage repayments of 40%.”

There is, however, a flaw in this argument, which the article in El Mundo does not pick up. Euribor – the base rate normally used to calculate mortgage rates in Spain – may have fallen rapidly to historic lows, but the average interest rate charged on new mortgages is actually rising, and credit terms getting tighter, making it more expensive for new borrowers to buy homes. Falling Spanish mortgage rates are only benefiting existing borrowers, who already have a home.

Another positive sign, says the article, is that housing starts picked up in the last quarter of 2008, rising by 7% compared to the previous quarter.

The recovery is already underway, suggests Bernardos, who says that, so far this year “sales have been between 25% and 40% higher than in the same period last year.”

So the market bottomed out in 2008, goes the argument, when house sales fell by 28.8% whilst property prices fell by 5.4%, all according to official figures. On the question of prices, Bernardos doesn’t believe the official figures. “The fall in prices hasn’t been less than 20%, and in some places much more,” says Bernardos.

Another real estate expert cited in the article says that sales rates at new developments have picked up significantly. “In many developments they have sold more in the first quarter of 2009 than in the whole of 2008,” he says, also arguing that “prices have already bottomed out.” “Banks didn’t know where the bottom was, now they do and they are giving 80% mortgages because they feel the market has bottomed out,” he goes on, whilst also warning that “nobody should expect bargains at 50% discounts. That’s not going to happen.”

Whilst Bernardos expects the market to return to life this year, that doesn’t mean he expects prices to start rising soon.

“Sales will start to rise in 2009, whilst prices will stop falling in most places by the end of 2010,” writes Bernardos in his report.

But if Bernardos is right, and prices continue to fall this year, that will encourage people to delay their purchase decision, and reduce the number of sales. The article does not pick any holes in his arguments.

And at no point does the article mention of the second home market, which operates differently to the primary housing market. Given the present state of the economy, with unemployment rising across Europe, it’s not hard to imagine that it may take a while longer for sales of holiday homes to pick up.

Story from Mark Stucklin

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November 4th, 2008

Spain’s Socialist government on Monday announced a new round of emergency measures to soften the impact of the economic crisis, including the funding of a two-year, partial moratorium on mortgage payments by the unemployed.

In addition to the mortgage relief, José Luis Rodríguez Zapatero, the prime minister, unveiled tax benefits and financial incentives designed to help home-buyers and promote job creation, especially in industries such as alternative energy that the government wants to promote.

“The government is convinced that it has the capacity, strength and determination to ensure that the families in this country in the most difficulty are supported and helped,” Mr Zapatero said.

Read more at Financial Times

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