Posts Tagged ‘Mortgage relief’


November 6th, 2009

The government of Andalucia, or Junta, announced yesterday a subsidy of 1 billion Euros to help liquidate the region’s property glut estimated at around 70,000 newly-built homes.

Like the ‘cash-for-clunkers’ programme used to subsidise car sales, public money will now be showered on house-hunters in Andalucia. But second home buyers can stay in their seats as the scheme only applies to local residents buying main homes. Even so, it could benefit foreigners living in Andalucia, and help lift the market out of its slump, which might lift prices for all types of property.

How it works
The way it works is developers participating in the scheme have to offer their property for sale at mortgage cost, wiping out their margins and giving a discount of 20%. Participating banks, for their part, will loan 100% interest only for the first 3 years. Starting in the fourth year the Junta will offer loans to subsidise mortgage payments for up to 5 years and a maximum of 15,000 Euros. As a result, buyers will save as much as 40% over 8 years, according to calculations by the Junta.

More conditions: The offer stands until the end of 2010, the properties must be newly- built, and the mortgage no greater than 245,000 Euros, the price limit for social housing. Mortgages must be 100% LTV, up to 30 years, charging an interest rate of Euribor +1%

Read the fine print, though, and the Junta isn’t being so generous. In year 9 mortgage lenders have to reimburse the subsidy to the Junta and add it onto the outstanding mortgage, so the borrower pays in the end. Nevertheless, thanks to inflation, buyers will probably have to pay back less, in real terms, than they borrow. Many people expect inflation to take off in the next few years.

You could argue that it is morally questionable for the government to be spending 1 billion Euros subsidising home buyers when there are so many other more needy causes. And isn’t this is just a wheeze to get buyers to pay inflated prices for homes today whilst transferring the burden of payment onto tax payers in the future? Wouldn’t it be cheaper, and cause less economic distortion, just to drop prices today to a level that people can afford without crucifying themselves on a 30 year mortgage subsidised by the government?

Story by: Mark Stucklin

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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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May 15th, 2009

As part of a raft of useless gestures to deal with the economic crisis, José Luis Rodríguez Zapatero, Spain’s Socialist Prime Minister, has announced that mortgage relief will be eliminated on mortgages taken out after 2011 by borrowers with incomes of 24,000 Euros or more.

The measure is supposed to stimulate the housing market by giving buyers a reason to bring forward their purchase, rather than wait and potentially lose their right to mortgage relief.

If it were to succeed, this would help mop up Spain’s housing glut of 1 million new homes, and eliminate a fiscal incentive to buy rather than rent, something that organisations like the IMF and OECD have been calling for for some time.

Zapatero announced the measure during the annual state of the nation debate in Parliament this week as a way to deflect attention from Spain’s economic problems. In typical Zapatero style it was presented as a ‘progressive’ measure that only hits ‘high earners’.

In reality, however, the plan hits the middle class, and given property prices and incomes in Spain, will affect almost anyone with enough money to buy a home. Mortgage relief will be reduced after 17,000, and eliminated after 24,000 Euros income per annum.

The opposition leader Mariano Rajoy called it an “attack on the interests of the middle classes” and said his party would retain and increase mortgage relief to stimulate the market.

Developers have criticised the plan, calling it a negative stimulus. Though it may help them shift some stock in the short run, it will harm them in the long run, reducing the incentive for people to buy homes from developers.

Some experts are claiming that banks will be the biggest, and possibly only beneficiaries of this measure. “The banks are the ones with the key to financing and with the cheapest property,” Eduardo Molet, President of the Network of Property Experts, told the Spanish press. “But thinking that the banks will sell their stock rapidly is a mistake, as their product isn’t exactly the best,” Molet points out.

Mortgage relief in Spain is only available to residents with mortgages on their primary residence. As such, Zapatero’s plan will have little impact on the second home market on the coast. Nevertheless, it could affect Britons and other foreigners relocating to Spain and buying a main home with a mortgage, if they have incomes above 17,000 Euros per annum.

Eliminating mortgage relief does little to address the real problem of the Spanish property market, namely that too much inappropriate, unattractive, and overpriced property has been built, especially on the coast.

Story by: 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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