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PROPERTY MARKET
House prices will fall 24% by 2011 “in an adverse scenario”
According to the Research Department of BBVA, house prices have not yet bottomed out. “In an adverse scenario” it predicts a fall of 24% by 2011, which would imply a real adjustment of 40% from the highs reached over a period of less than three-and-a-half years. Despite this, the bank noted that so far 2010 has been a better year for the residential sector than 2009.
In the latest report published by the bank, “The Situation in Spain in the third quarter of 2010”, the bank said that the stress tests carried out by Banco de España for the country’s financial system showed macroeconomic scenarios that were more severe than in other Eurozone countries, in terms of a fall in GDP and house prices. The bank analysed the worst scenario, and forecast house price falls of 24% by next year.
The experts affirm, after having analysed 44 crises, that we are seeing a more significant correction than the average of those observed in previous real estate crises. They have calculated an average adjustment of 21% for house prices, and an adjustment period of at least 4 years.
The report indicates that the housing sector is still adjusting, although at a slower pace than in 2009. It explains this slowdown in the housing sector fall by citing the number of new housing projects approved, and also accessibility ratios which are lower than those of preceding quarters, thanks both to the Euribor, which is “still at a comparatively low level”, and also price corrections. BBVA believes that prices have fallen by 15.1% in real terms from the highs which were reached in the first quarter of 2008.
In the bank’s opinion, the demand for housing will continue to react positively, and house sales will continue to follow the trend for year-on-year growth which started in January of this year. The bank stressed that the pick-up in demand is most noticeable in the second-hand housing market, and added that “since December 2009, the year-on-year growth rates registered for second-hand home sales have far exceeded the rates registered for new housing”.
Despite this note of optimism from BBVA, it points out that this rally in demand is chiefly driven by homebuyers deciding to buy now rather than later, in response to the elimination of housing tax breaks for those who earn over 24,000 euros, a measure which is scheduled to come into force in January 2011. “This tentative recovery is based on buying decision factors which are temporary in nature, which inevitably casts doubts on the speed at which the sector will stop making a negative contribution to growth over the coming quarters” added the bank.
Banks outperform real estate agencies in house sales, but are not completely happy
Caja Madrid, 1,237 homes up to May, and Caixa Catalunya 500 homes. These are the house sale figures for two large Spanish financial groups, figures which the large real estate agencies, if we look at their results for the first quarter, are finding it impossible to match (Realia 133 homes, Metrovacesa 217 homes handed over and 160 homes sold, and Quabit, formerly Afirma, 119 homes handed over and 121 pre-sales agreements).
The banks not only have more residential properties on their balance sheets than the real estate agencies, but are also selling more. They have more aggressive marketing campaigns, which highlight discounts and financing.
The banks also have physical points-of-sale networks, their branches, while the current climate of crisis has led to a dramatic reduction in the sales networks of the real estate agencies.
Despite the fact that they are far outperforming the real estate agencies in sales, the banks are still not happy with the situation, and will continue to try and offload their property assets as quickly as possible over the coming months. It is clearly in their own interests to try and reduce their large property portfolios, which are currently very hard to sell and cost them money, while an added incentive is that Banco de España intends to bring in new regulations in the autumn, which will force banks and saving banks to make bigger provisions on the real-estate assets they hold.
In this regard, Banesto, the bank that is headed by Ana Patricia Botín, aims to double its house sale figures during the second six months of the year.
To achieve their goal, banks will continue with their policy of having an active presence at real estate trade fairs. In addition, banks and savings banks are gradually starting to use the Internet to advertise their properties, a strategy which is allowing them to significantly enhance their market penetration, and speed up sales.
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LEGAL NEWS
How to remove the minimum interest rate clause from your mortgage
If your mortgage has a minimum interest rate, or mortgage floor, it can cost you money
What is a mortgage with a minimum interest rate?
HelpMyCash.com, a mortgage portal, explains that a mortgage floor is a mortgage in which there is a lower limit on the amount of interest you pay on your mortgage each month, which means that if the Euribor falls below a certain level you do not benefit from the fall, even though, in these times of crisis, there are a lot of families whose monthly mortgage payments have been greatly reduced thanks to reductions in the Euribor.
Mortgage contracts which have a minimum interest rate also have a variable interest rate (Euribor + differential) and this means that banks can use the two rates in the following way:
- If the Euribor + differential is below the minimum interest rate, the bank charges the minimum interest rate
- If the Euribor + differential is higher than the minimum interest rate, the bank charges the Euribor + differential
This means that banks will always charge the higher amount, whatever the rates.
When does a mortgage floor constitute an unfair clause?
Although there are multiple irregularities regarding mortgage floors (confusing publicity, banks failing to provide sufficient information, being deemed unfair under Article 49 of the Consumer Act etc), from a legal point of view, mortgages with a minimum interest rate can only be considered to be unfair when they fulfil at least one of the two following conditions:
1. The contract with a minimum interest rate does not have a cap. That is to say, the bank protects itself against reductions in the Euribor, but does not offer the mortgager any protection if the Euribor goes up.
2. There is no legally binding mortgage offer (document drawn up by the bank which contains the exact mortgage conditions agreed upon by the parties), the mortgage offer does not mention a floor, or it is not signed by the customer. For this reason, it is always best to start by negotiating with your bank. There are various ways to try and remove, or at least reduce, a mortgage floor.
Recommendations on how to remove a mortgage floor from your mortgage
1. Negotiate with your bank before the periodic mortgage review
As a result of the complaints made by several consumer associations and bank customers over recent months, banks are coming to realise that the era of “anything goes” is coming to an end. For this reason they are increasingly willing to remove these controversial clauses from the contracts, or at least reduce them, if customers ask them to do so before the periodic mortgage review. If you have a good financial reputation and an excellent payment history, the bank should do everything in its power to keep you as a customer.
2. Consider a mortgage subrogation (change of bank)
If the bank is unwilling to modify or negotiate the mortgage floor, you can consider the possibility of changing banks. If the new bank offers you better terms by removing the minimum interest rate, and puts this offer into writing in a legally binding mortgage offer, you can use this offer as a negotiating tool with your bank. It will only have two options: match the offer to keep you as a customer, or let you sign the better option.
3. Demand your rights through legal means
If the negotiations with the bank are not successful, you can still claim your right to a mortgage with no unfair clauses by making a complaint. There are 3 main ways of doing this: (1) making a formal complaint by submitting an extrajudicial complaint to Banco de España (although Banco de España´s decisions are not legally binding); (2) taking private legal action against the bank, and; (3) becoming a member of an association such as ADICAE, ASUAPEDEFIN or similar organisations and becoming part of a joint complaint. As of the time of writing, these actions have prompted several banks against which complaints had been lodged into calling the affected parties, and offering them a reduced interest rate in exchange for withdrawing the complaint.
Recommendations from ADICAE when taking out a mortgage
The Banks and Insurance Consumers Association of Spain (ADICAE) recommends that all homebuyers should calculate how much they will pay for the mortgage on the basis of the whole mortgage term, and not just the first five years, as it believes that the latter approach is misleading. To help people avoid the worst mortgage traps, the Association offers several recommendations for anyone thinking of taking out a mortgage.
1: Customers should avoid any binding conditions which are unfair. It is important to take into account the fact that many financial institutions offer loans with a differential over the Euribor of less than 0.5%, but that this offer is conditional to contracting products, pension plans, or investment funds, all of which makes the mortgage much more expensive
2: The requirement for loan guarantees should not be accepted at any time, as it is the borrower, with the property, that is responsible for the loan, and not the guarantor.
3: Toxic products such as minimum interest rate clauses or swap contracts are high risk, and should be avoided. ADICAE thinks that a fair minimum interest rate clause would be one which had a 2% floor, and a 6% cap. If your mortgage has a floor, read these recommendations.
4: ADICAE advises against going to debt consolidators. The OCU also advised against using them because they earn substantial commissions from acting as intermediaries between clients and banks, and because the solutions they provide are the same ones that you would get by negotiating directly with the bank.
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