Gecko Towers
The Global Financial Crisis of 2008, as we all know from watching the excellent movie “The Big Short” was, in part, precipitated by some reckless disregard by some mortgage lenders for the usual tenets of cautious lending.
The expression that has been used in the Marbella region is that if the mortgage applicant had “a passport and a pulse” then they would get an advance to complete on their property. Combine this with a number of years in which overvaluation of properties became the norm a tinderbox was ready to explode. And it did….
The fallout affected many, who sadly, became embroiled in the process of ceding their property in the sun to the recovery department of the bank lender or Hedge Fund who’d purchased a bulk portfolio of distress property assets on a cents in the Euro deal. The Dacion en Pago process fueled the already large portfolios of former bank-funded stock.
Equally, as there were many development projects that had been greenlit in the ‘easier’ funding times where building finance had been plentiful when the hammer fell many construction groups failed and their lenders recalled their developer debts. Their settlement often included swapping non-performing debts for the property asset. They took over the finished or part-completed developments in order to finish and to then re-market them to a new market of keen purchasers.
In one form or another, a significant number of either individual but older properties on established developments or entirely new developments have now been launched to a new generation of buyers. These tend to be both attractively priced and are often completed to a good level of specification so they offer a compelling opportunity for an incoming purchaser.
There are other drivers as to why this would be a good prospect for many looking for a property on the Costa del Sol. You may have heard that many British based mortgage lenders, unlike the period pre-Crisis, are loathed to lend even on a very low loan to value for the purchaser of a Spanish property. Many of the deals available in relation to bank-owned stock now come with a mortgage which for national clients carries an astonishingly good 90% Loan To Value (LTV) funding and from international clients – including Brits – this falls to 60% and in some cases 70% LTV.
While it may simply not be as severe as the Global Financial Crisis of the early naughties, readers will be aware that in certain home markets such as the UK interest rates are rising with what seems like monthly announcements from the Bank of England. In Spain too, the Euribor rate which is used to calculate mortgage interest repayments, is also on the rise. Many who opted for variable interest rates when they purchased their property – particularly their second or a leisure property – are now regretting that decision making the cost of maintaining their Marbella property increasingly expensive.
From anecdotal comments that I have heard, there may be rumblings of micro-version of the previous failure to service mortgage debt leading to attempts to engage with bank mortgage lenders to see if the owner of property can “return the keys”. This is at an early stage and with the economic forecasts for Spain are generally positive, but I believe there may well be some opportunities whereby the bank’s and their associated real-estate agency will see a spike in managed repossessions leading to more Repossessed property stock being made available to the buying market.
As in the previous era, the banks had an obligation in selling repossessed property to certainly attempt to cover their mortgage exposure. Their lending has been certainly more cautious post 2008 and prices have generally risen quite a bit. It should not be assumed that any “new” repossessed stock will be sold at bargain basement prices. However, in my opinion, it will lead to a modest increase in the available property stock in the medium term.
While it is possible for the right buyer to buy a bank repossession for cash, it is fair that we explore in some detail the process that is now demanded both by the Banco de España and the individual lending group who are supporting these sales.
In seeking to settle the agreed purchase price for your chosen property by a way of a Spanish mortgage you will inevitably be required to provide extensive materials to support your ability to service the monthly mortgage payments. Introducing circa 40% cash towards your towards the purchase price you will inevitably be involved in a process that engages with the bank’s Prevencion Blanqueo Capitales (or PCB) Department.
Post Crisis and 9.11 the international push for transparency in the acquisition of financial resources has bordered on the obsessive and Spain, like most developed countries, now has very stringent Anti-Money Laundering regulations. In many sectors the use of cash has been clamped down on and the necessity to prove the origin of your funds has grown exponentially. You should understand whether its your sales agent or legal advisor the penalties for failing to ask the appropriate questions and to receive satisfactory answers makes them criminally liable if at any later stage it is shown that the funds were in some way tainted.
Money for some can be a tricky subject but neither your sales agent is being rude or “snooping” into your private business, these questions need to be asked and answered clearly. It may sound destructive but without satisfying the PCB Departments requests you will be unable to complete your purchase and your deposit paid at reservation – as is usual – may well be at risk.
The estate agents representing the buyer in relation to the purchase of Bank Repossessions seem to have inordinate patience and spend a huge amount of time co-ordinating their client’s delivery of supporting documentation and data. And they really earn their sales commission!
You will need to be prepared, at a minimum, the be able to supply the following:
- A proper trail, including accompanying documentation showing from where the sums you are introducing to the transaction arose from and inheritance or the sale of a property for example. This proof is needed for each of the amounts that you may be amassing together to comprise the cash that you are introducing.
- You will need to be transparent with the details of your bank accounts, wherever they are located, that show where the sums now sit in addition to the trail of where they came from. This may comprise P60 HMRC documents and their equivalent from other jurisdictions, annual Tax Returns and salary information.
- In addition, if you are seeking a mortgage you will need to be able to deliver many of the above and any further requested information proving your ability to settle mortgage debts as they fall due. This will involve details of you current liabilities in your home market, existing mortgages, Hire Purchase arrangements, credit card debt and credit agency reports.
- If you are an older buyer who may be seeking a short duration mortgage, given your age, you will also be required to deliver materials that prove your pension income and your associated living costs. This may all seem intrusive but it is required.
I sense that you may need to breathe out! Like your sales agent, our law firm is experienced in the management of the above process. While I wouldn’t say it is at all formulaic as each deal throws up unique challenges, the more times these transactions are done the more familiar my professional colleagues become with the process.
Should you be interested in discussing the legal process involved in buying a property in the Marbella region, we would be delighted to assist you. Our multi-disciplinary team of bi-lingual, highly experienced and wholly independent Abogados and Asesores Fiscales are ready to help you.
Please call me, Mark FR Wilkins, during usual business hours on +34 600 343 917 or, if you prefer, or e-mail me at mark@roslegal.es
Please note that our posts are for general interest. There is no substitute for proper legal advice tailored to your specific circumstances as provided by a qualified Abogado who is experienced in the application of the Spanish Law.
Nothing contained in this article should be seen or taken as the writer or the publisher providing legal, tax or financial advice.
All details have been reasonably fact-checked and all efforts have been taken to ensure that facts are accurate as at the date of publication.
© Mark FR Wilkins 2023. All rights reserved.