EU Property Solutions- Experts in all Spanish property issues

Enticed by initial low monthly interest repayments, buyers were mis-sold with the expectation that property values would rise quickly. So, paying off the final bill on the capital would be easy. With that, and the additional possibility of earning a potential rental income to more than cover the monthly payments, what could go wrong? Well, a catastrophic financial crisis and unexpected fall in property prices hit!

Typically, these mortgages were sold with 10-15 years of low interest-only repayments before paying off the actual loan. It seemed entirely feasible for buyers, especially with the ‘imminent boom in prices’ predicted. The problem was these impressive promises were overshadowed by a complete lack of due diligence by the ‘professionals’ they trusted.

It’s entirely understandable why buyers were dazzled by the lure of relatively small monthly repayments, for what was then deemed to be an extended period, against such attractive yields. The purported riches and cash flow created from their purchase all sounded fantastic. However, like most, if not all, 'too good to be true' scenarios, it was.

With the interest-only mortgages, property owners were often caught in a perfect storm due to falling property values and the meteoric rise of monthly repayments from interest-only to a repayment-style mortgage, dashing any hopes of guaranteed yields.

This terrible mix of interest-only mortgages and their perception of assured revenue severely affected buyers in every sense. It was further exacerbated because the 10-15 year period of interest-only mortgages usually takes the purchasers into their early retirement—a time when changes in income can be devastating. 

Overall, this lack of financial due diligence and the over-inflated property market was a crisis waiting to happen. And, to all intents and purposes, left these interest-only mortgages worth less than the paper they were written on.