Buy a Cheap Property in Spain with a 110% Mortgage

British buyers seeking properties in Spain are being offered risky 110% mortgages to get their hands on properties that banks are keen to get off their books.

These loans, which are 10% more than the home is worth, will see the extra cash being spent on completion costs. Insiders have warned however that these deals could result in oblivious borrowers losing money.

Spanish lenders are doing everything they can to shift the hundreds of thousands of repossessed flats and villas which they took from those who had suffered as a result of the property crash. They’ve now adopted this new tactic, which is to attract overseas buyers by offering loans to purchase flats and villas at a cut-price deal.

The buyer would of course not require a deposit to acquire these properties and the extra cash from the 10% could then be used to complete renovation work etc. Completion costs are high in Spain, which is one of the reasons why attempting to woo overseas buyers has struggled somewhat in recent times. The cash required for home improvements is freed up with these risky mortgages.

Some of the properties on offer include three-bedroom, fully-furnished flats in close proximity to the beach in Murcia, with the property also boasting a luxurious swimming pool and tennis court at a total cost of £49,000. Two-bedroom flats in the Costa del Sol are available for around £95,000 and are walking distance from the marina and beautifully sandy beaches.

It all seems too good to be true in some cases, but these mortgages have been titled “risky” for a reason. Insiders have claimed that unsuspecting borrowers may well end up losing money were they to pursue these loans. The Spanish property market possesses over 600,000 unsold homes and many of these properties have rolled over from the building frenzy that took place before 2007.

Property prices have subsequently fallen dramatically by over 50 per cent over the last few years and these prices continue to fall. The prospect of taking out a loan that covers the property’s value and more could well be seen as a major risk and could result in borrowers being plunged into negative equity. For instance, you may need to sell the property urgently, in which case you’ll end up losing thousands.

These risky mortgages aren’t quite alien to foreign buyers however, with mortgages that involve taking more than 100 per cent of the property price being quite common before the financial crisis in the UK and elsewhere. Simon Conn, an independent foreign property expert, stated that “these kinds of loans could be very risky, though it could be an amazing deal”.

“However” he continued, “People have to realise that there will not be any growth from these properties for years. You have to be really careful about what you are doing and question why the banks are offering you these kinds of loans.”

Before the financial crisis in the UK, borrowers could take as much as 125% of the property’s value with banks such as Northern Rock. The buyer is of course in instant negative equity which is the biggest risk of all. While house prices rise this doesn’t seem a bad option at all, but as soon as house prices began to fall many borrowers would be left with loans they couldn’t afford to pay back.

In most cases, people looking to sell these properties would end up losing tens of thousands, which is why these offers no longer exist in the UK. With overseas banks offering these mortgages once more, it could well be an attractive proposition to British buyers of foreign homes.

As a rule, the mortgage for buying a property in Spain is issued at 2.5-3.5% per annum. Therefore, the rates generally are lower in Spain than in other countries. Currently, the possibility to obtain a mortgage in Spain with a UK bank is decreasing. After Brexit, many British financial institutions are in the process of leaving Spain. Barclays, the largest British bank, recently sold out its departments in Spain and Portugal.

When the Spanish property boom peaked in 2006, Spain had built over 760,000 homes and the developers were rushing to cash in as the prices began to soar. Many of these developers ended up going bust once the financial crisis kicked in however. Some of these homes were left abandoned, especially by foreign buyers who left the country when they realised Spain was fighting a losing financial battle.

PCG Invest say they have agreed a deal to offer 110% loans alongside several Spanish banks. PCG say there has been a major surge in interest from British customers who are keen to get their hands on cut-price Spanish property. Darren Brown, the chief executive at PCG Invest, said “We make sure people are aware of the risks before they buy these properties”.

Article submitted by Panorama, Marbella’s longest running real estate agency with over 45 years experience providing a personal and non-aggressive service in the Spanish Costa Del Sol region’s property market.

One thought on “Buy a Cheap Property in Spain with a 110% Mortgage

  • December 31, 2017 at 9:01 am

    I’m looking for a 110%morgage are you able to help me find one please…


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