Posts from — October 2008

As Tenerife is part of Spain, property in Tenerife is priced in Euros. Something that continually crops up is the subject of  Spanish Currency Mortgages and Multi-Currency mortgages in Spain. This is a complex subject and there is a lot of mis-information surrounding the topic.

To clear things things up, advice from our Tenerife Mortgages website:

Currency mortgages do exist in Spain, in fact every non-resident British buyer has, by definition a currency mortgage. This is because their mortgage is in Euros and the money they earn in the UK is in Sterling. Unfortunately this brings about a risk to these buyers. If the pound goes down in value against the Euro, then their mortgage payments effectively increase.

• A British buyer paying 1,000€ per month in Spain has to come up with £714.28 when the exchange rate is 1.40€ per pound.
• If the rate changes from 1.40€ per pound to 1.10€ per pound then they now need £909.10 per month to pay the same mortgage on the same property.

This obviously presents a problem. To offset this risk, currency mortgages were introduced by a select number of banks. You can now take a Spanish Mortgage denominated in £ GBP or Swiss Francs (CHF) as well as many other currencies.

Unfortunately this has led to a lot of bad information about currency mortgages where people for some reason believe that switching to Swiss Francs or some other exotic sounding currency somehow saves you money. It doesn’t!

We also continuously hear about switching to “more stable” currencies. But how can this help you? If your earnings are in £GBP then whatever currency your mortgage is in, presents a risk if £GBP loses value against it – like it has against the Euro.

Most of the advice and information banded about is merely sales talk and is actually quite mis-leading, in some cases plain wrong. Thankfully the banks have addressed this and today it is very unlikely you would qualify for a Swiss Franc mortgage on a Spanish property unless you could convince the bank you have a vested interest in the Swiss Franc currency – perhaps you are paid in Swiss Francs for example – in which case it is a good reason to consider this as a mortgage option.

If you are an experienced investor/currency trader and you understand the risks associated with currency mortgages then perhaps a Spanish Currency switching mortgage is a product that would be suitable for you. These work on the basis that you can switch the currency of your entire mortgage a limited amount of times per year to take advantage of swings in the currency market. These are high risk products and in general are not appropriate for the average property purchaser in Spain.

What is more appropriate, especially for British buyers is the ability to take a mortgage in your own countries currency thereby guaranteeing your payments cannot increase due to a drop in the exchange rate.

It is also possible to Re-mortgage your current Spanish mortgage into £ Sterling for example if you are based in the UK but, take professional advice from an independent UK-qualified mortgage broker.”

If you wish to discuss any aspect of Spanish Currency Mortgages in Spain or Tenerife, contact TenerifeMortgageBroker.com

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Now that the purchase contract is taken care of – your money is no longer at risk should the banks let you down at the last moment.

Now what? Well now you need to find that mortgage. There are lots of banks in Spain and Tenerife offering mortgages to non-residents so how do you know which one to choose? The difference between one type of mortgage and another can literally double the amount of money it costs you to purchase your property. Amazing but true.

On this website about  Tenerife Mortgages there is a great example of how you can end up paying far more than you ever need to with just a few wrong decisions.

Bear in mind that there are the legal fees and taxes to be paid in addition to the sum not covered by the mortgage. So on a purchase of 200,000 Euros for example, the additional costs add up to 20,000 Euros.

If you are offered a 70% mortgage (140,000 Euros) you need to find the difference (60,000 Euros) plus the costs (20,000 Euros) which totals 80,000 Euros cash.

A 70% mortgage is quite typical in Spain although more is sometimes achievable. generally speaking though, the more you want to borrow, the more interest the banks will charge you so if you don´t need that extra 10% – don´t take it.

A good independent Spanish Mortgage advisor is worth their weight in gold and will look after your best interests, we always recommend an independent broker over approaching the banks yourself, worse still do not allow your estate agent to arrange your mortgage. None of them broker the mortgage market in Tenerife and it is a huge conflict of interest letting them control this aspect of the sale.

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Over half of those buying property in Tenerife do so with a Spanish Mortgage. Since the credit crisis this has become far more difficult as the banks have reigned in there lending criteria. The whole process takes much longer and clients who would have easily qualified for a mortgage as little as 12 months ago may now end up with no Spanish mortgage at all.

The biggest danger to come from all this is to those who must have a Spanish Mortgage to compete their purchase. All too often, reservations are paid and deposits are put down before the mortgage has been confirmed or arranged. If a buyer is subsequently turned down for a mortgage, what happens to their deposit? In most cases it is simply gone. A situation we find completely wrong and easily avoidable.

Who receives this money? Why can the buyer not have it back? It is surely not their fault they cannot get a mortgage. So whose fault is it? The banks? The estate agents?

What really matters is had the correct procedures been followed no money would not have been lost in the first place. There is a very simple and effective solution to this problem. The purchase agreement/contract must contain a clause stating that should the bank fail to offer a mortgage of sufficient size or should the bank subsequently cancel the mortgage offer, the buyer receives there deposit and reservation back in full – no questions asked.

There is no reason in the world for this not to happen other than perhaps some less than honest estate agents wish to earn commission whether the sale goes through or not. So when buying property in Tenerife with a Spanish  Mortgage – insist on these terms, don´t take no for an answer, don´t accept any excuses and make sure your independent lawyer can confirm to you that this added to any contracts you sign before you hand over any money.

Tenerife Property – Buying with Spanish Mortgages pt 2

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