Spanish holiday homeowners are about to feel further pain as the country's weaker banks struggle and property prices and demand continue to fall.
The collapse in the Spanish property market is expected to leave more than 900,000 new homes unsold this year and Spain's prime minister Jose Luis Rodriguez Zapatero warned this week the nation's banks will not escape unscathed.
While Spain's giant banks Santander and BBVA have managed to ride the current financial storm, the nation's smaller banks and savings and loans institutions cajas are struggling to remain afloat.
Meanwhile, there is a shortage of new UK buyers, as many prospective owners struggle to raise funds with a banking squeeze in UK and Spain and the falling pound raising mortgage and property costs.
Prime minister Zapatero warned the cajas were facing mergers or takeovers this week, according to the Financial Times, as their bad debts from residential property lending rise – a scenario likely to lead to a further tightening in the property market.
The cajas are heavily involved in Spain's property industry, lending both to developers and to mortgage borrowers.
The warning came as Spanish property valuations firm Tinsa said that Spain's number of unsold homes was likely to hit 920,000 this year, with holiday hotspots hit hard.
Tinsa said that house prices fell by 4.9% annually in September, decreasing for the seventh consecutive month. This information contradicted Spanish Housing Ministry figures which said prices fell by 1.3% in the third quarter of 2008 to leave them up 0.3% on September 2007.
However, experts consider that both figures underestimate the decline in property values in many popular areas, with the Costas having large numbers of unsold and unfinished developments.
British owners of Spanish property have been relatively insulated from price falls by the 15% fall of the pound against the euro over the past year, making their Spanish home worth more in terms of sterling.
However, those who have taken out sterling mortgages in the UK to pay for their properties or are having to exchange their sterling earnings into euros to pay Spanish mortgage bills have seen repayment costs rise substantially.
Meanwhile, falling house prices in the UK and a right mortgage market have seen a dramatic reduction in equity being released from UK properties according to the Bank of England and a far lower level of demand for overseas property.
Although the Spanish property market is undergoing a correction, overseas property experts predict that a flight to quality will mean that it should remain top of the pile for British holiday homebuyers.
Conti Financial Services, an overseas mortgage specialist, says that Spain still remains the number one destination with 15% of its enquiries coming for the traditional favourite, down 2% on last year, ahead of France (14%) and Turkey (11%).
The broker said that Spain's long-established market will provide long-term growth and remained popular as a lifestyle option for expats and holiday destination with sustained rental demand.
Simon Conn, of Conti, said: ' Spain and France are still leading the pack, albeit with a narrowing margin, and it's not difficult to see why. Affordable prices, low interest rates, easy access and great weather have all contributed to the attraction of these destinations, but their lead is being weakened as investors turn to emerging markets. The strong euro has also taken its toll.'
Source:
Thisismoney.co.uk