Is it better to lose my 6,000 Euro deposit than to buy during this credit crunch?

Hello from a New Member

We are in the process of purchasing an apartment on the Costa Del Sol and paid the 6,000 initial reservation deposit a month ago.


Our intentions were to rent it out long term for a few years and take holidays there.  

We would then move over to live in Spain when our child gets to say 11 years old.

The process has been ongoing for a couple of months now and we are close to paying a 10% deposit to secure the deal.

Considering what has been happenning recently with increasing prices for Mortgages, Food and Fuel, we are having serious second thoughts.

Does anyone believe it is a good time to buy now or am I better off playing safe, cutting my losses { 6,000 euros } and walking away.

We have secured a substantial mortgage which has high monthly repayments so if the Credit Crunch gets worse and prices continue to rise then we will be in serious trouble.

Wlii we be better pulling out and looking to buy in Spain in a few years time when the prices and the economy are hopefully more stable?


Any advice would be appreciated.


Thank You

 Spam post or abuse? Please let us know

Hi there,

One line in your posting causes serious concern, and that is "We have secured a substantial mortgage which has high monthly repayments so if the Credit Crunch gets worse and prices continue to rise then we will be in serious trouble". IMHO, no matter what the economic situation, you should never put yourself at the mercy of interest rates. Anything could happen. Buying in Spain is a luxury not a necessity and I would never take on a huge risk.

House prices in Spain, as well as the rest of the world may well go down, and for those who buy to live for the longer term wont be affected by flucuating property prices, but gone are the days when you buy for investment and dont for one second think that you will be able to rent the place out to pay the mortgage, you wont. There are thousands of places and thousands of owners who were taken in by the euphoria of the ever rising house prices and the empty promises of the agent and as a result, thousands of empty viillas and apartments waiting to be rented out.

My opinion, for what it is worth, is try and get your deposit back. If you cant afford to buy this place out right, or at least know that the mortgage payments will not be a problem (i.e., you have guaranteed income from savings), then you are taking a huge risk.

Sorry if this is not what you wanted to hear but at least you've heard the worst!!

 Spam post or abuse? Please let us know

Hello Eva2008.


Thanks for your reply.


The mortgage repayments quoted seemed manageable last month before the credit crunch seemed to get out of hand.


We were hoping to be able to bring in @ 600 Euros per month for the 3 bed 2.5 bath apartment on the Costa Del Sol to help towards the mortgage costs and utilities/ community charge costs. 

Ideally we would rent out the apartment for 11 months and then holiday there for 2 weeks and spend 2 weeks repairing and repainting if necessary.

During the last month or so we have heard how hard it has become to rent out a property in Spain.

We could sell our property in the UK and clear the mortgage at the moment but are not yet ready to move over.

If house prices keep falling and the mortgages and cost of living keep increasing we could end up in trouble.

Maybe now is not the time to take that risk and we should walk away 6,000 Euros poorer but with some peace of mind.

Have any other members walked away recently or wished that they had?

We would like to hear your stories.

Thanks Again.

 Spam post or abuse? Please let us know

I have to say that with all the stuff we're reading about the CC, I would tend to agree with Eva. In particular, I think that if rental income is going to be critical to cover your mortgage, you are putting yourself at unnecessary risk. 

Just a thought - I see from the English papers that "gazundering" is the new practice in the UK - although I guess it's easier in the UK, because no money has been committed at the offer stage. Just wondered whether there may be any mileage in offering a lower price than originally, to continue with the sale. The seller may be desperate enough to sell, and accept the new offer? If you could get say, €7000 off, that would be the equivalent more or less to a years rent, giving you a bit of breathing space.

 Spam post or abuse? Please let us know

Jamie

Yes yes and Yes. For goodness sake walk away. You sound like a good person with family and responsibilities. Now is a disasterous time to buy a property in Spain, even the die hard bulls on here are only recommending you do it with unfinanced cash.

Have you seen how may comparablyproperties like yours there are on the rental market? All these poor people were sold property on the promise that they could rent it out to cover costs, whilst the apartment was a great investment for the future. These have been plain lies and are now undisputed as such. The rental market is saturated such that most of these apartments are sat empty, do you know the tax implications for non resident landlords? Its 25% of the gross rent before costs, add in mangement fees etc and even if you could rent it, its not worth it.

What will likely happen is that your new apartment will fall dramatically in value and you will be stuck with the full costs includeing the ground fees etc and finance costs while it lies empty. Houses in the UK are now paralised, I speak regularly with an agent in the UK, and even prime property is not moving and requiring 10 to 15% off to move it. New build flats are unsellable and this is in Cambridge UK - a fine city by anyone's imagination. I suggest contacting a local agaent and having a serious chat about your UK property, you may find to actually sell it now it has fallen in price a fair bit.

If you go ahead with this I think thsi time next year you will be in deep do do. The only people still suggesting that you buy are those on the hook themselves ie agents and developers and perhaps a few people on here who are still trying to talk the market up.

I feel quite angry about the sales tactics used in the last few years by agents and developers in Spain. This popular myth about buying for long term capital appreciation/pension/holiday use whilst renting it out to cover costs is just that a complete myth. However unlike most fairy tales this one is more likely to end in a nightmare.

I think you have already worked this one out for yourself. Show this thread to your partner and don't be persuaded to do the wrong thing.

By all means come to Spain and enjoy the fantastic lifestyle here, but do as I have doen and rent. There is plenty of time to buy should you want to go down this route in a fe years.

 Spam post or abuse? Please let us know

Everyone has to take a pragmatic view if they are life style buyers

If you want a holiday home in Spain or in EU or are a life style buyer, you could end up waiting for ever for the 'magical 30% drop in overall property values in Spain' or UK or rest of EU

Some people have been talking about this for 15 months already and whilst the market is ' slow' there has and is no mad rush for owners to sell......why......simple on the Costas very few want to sell or have to sell ...they are enjoying their Costa home

Long term the general and pragmatic view is that EU property [ including UK & Spain] is OK long term 

 Spam post or abuse? Please let us know

Im a bit confused about the statements of high monthly mortgage andn then a rental of 600 euros a month long term. Thats low for a 3 bed apartment unless its back a bit, in which case you shouldnt be paying a lot anyway

Where are you buying, what price and what size is it if you dont mind the questions, Im interested in what you have been offered.

 Spam post or abuse? Please let us know

Quote "the housing market is sound and the underlying business is strong."

As forecasts go, that ranks alongside BBC weatherman Michael Fish's confident comment in October 1987 that we were not to worry because there was no hurricane on the way - a day before Britain's roof was blown off.

And .......

The final, and most costly, phase of the property party was marked by an industry-wide acceptance of an unsustainable proposition: that house prices could keep running away from wages without the foundations collapsing.

It was madness, yet not a new phenomenon. Such behaviour is a classic feature of market bubbles.

Housebuilders scream for help after losing their 'one-way' bet

By Jeff Randall

 

Remarkable, isn't it, how industries that complain about Government interference during boom times are quick to scream for state aid when the going gets tough. First it was the bankers, poor darlings, who demanded help, now housebuilders are calling on ministers to "do something".

The typical plea, you might have noticed, is rarely a straightforward appeal for taxpayers' money to rescue badly run companies. That would seem too much like charity. Instead, requests for handouts are dressed up as being "in the national interest" and necessary to avoid "systemic failure".

Earlier this week, John Slaughter, a director of the Home Builders Federation, told me in an interview on Sky that 25,000-30,000 construction jobs would go if the current situation continued. "We are saying very strongly to Government, 'You need to take good account of this and try to help the market at the moment so we don't lose too much capacity'," he said.

Far from being as safe as houses, this is an industry that cannot take even a few months of downturn, albeit a sharp one. Having enjoyed the toro bravo of bull markets, with year after year of record profits, some of its biggest players are already passing round the hat for emergency funding.How come? What happened to the insulation against a cold snap?

For a decade and a half, Britain's residential property sector was a one-way bet for builders, developers and estate agents. As house prices went to the moon, those in the bricks and mortar business felt they had discovered a permanent home in the sun. The only shadow on prosperity, it seemed, was cast by pesky officials in charge of planning consent.

Never mind that more and more buyers, particularly first-timers, were having to perform financial gymnastics to clear the mortgage bar, the housebuilding industry was happy to believe in eternal summers. Warnings that borrowers would crack under the weight of their debts went largely unheeded.

Barratt Developments, Britain's most prolific builder, enjoyed 14 consecutive years of rising profits, as it pushed operating margins above 16pc. Only last year, its chairman, Charles Toner, told investors: "We have strengthened our landbank and have achieved a record forward sales position… the housing market is sound and the underlying business is strong."

As forecasts go, that ranks alongside BBC weatherman Michael Fish's confident comment in October 1987 that we were not to worry because there was no hurricane on the way - a day before Britain's roof was blown off.

Chief executive Mark Clare was so thrilled with Barratt's prospects that in February 2007 he bought rival Wilson Bowden for £2.2bn. At the time, Clare had been in the job only a few months and had little experience of housebuilding. By contrast, David Wilson, who founded Wilson Bowden, had spent a lifetime in the industry. The timing of his exit, even though he took only about half his payment in cash, looks exquisite.

Equally clever was the decision of Jon Hunt, the founder of Foxtons, to sell his posh estate agency last July, the peak of the market, for £390m. Had Hunt waited 12 months, he would not have got even a quarter of that price. In fact, as the housing market crumbles, many agencies are simply unsaleable.

As is often the case, when those who know the business backwards, especially if they are the founders, reckon it's to time to sell, the rest of us should take note. The departure of Wilson and Hunt signalled the coming of winter.

Trevor Kent, an estate agency veteran, reckons that at least 1,000 offices have closed across the country in the past three or four months, with another couple of thousand in line for the chop. He sees no quick fix. "I think house prices will go down 10pc in the next 12 months," he said. "We could be talking three years at least before we get a normal market again."

Others are gloomier still. Lehman Brothers calculates that house prices could fall by more than 25pc from their peak, leaving up to 2m homeowners struggling with negative equity. Were that to be the case, the corporate casualty list would extend way beyond fringe players.

Barratt is by no means the only troubled housebuilder, share prices across the sector are down by 50pc or more, but it is the one against which the City is betting most aggressively. It has lost 90pc of its stock market worth, wiping out about £4bn of shareholder value.

What it thought was a claim on future earnings - the acquisition of Wilson Bowden's impressive landbank - has turned out to be a lethal drain on resources. Mark Clare must be wishing he had stayed at boring old Centrica, where high energy prices are fuelling bumper profits.

The final, and most costly, phase of the property party was marked by an industry-wide acceptance of an unsustainable proposition: that house prices could keep running away from wages without the foundations collapsing.

It was madness, yet not a new phenomenon. Such behaviour is a classic feature of market bubbles.

In their seminal work, Security Analysis, published in 1934, legendary investors Benjamin Graham and David Dodd had this to say about the rush for easy money: "The impressive new concept underlying the greatest boom in history appears to be no more than a thinly disguised version of the old cynical epigram: 'Investment is successful speculation'."

Every chief executive should have a copy.

This message was last edited by TJ222 on 6/19/2008.

This message was last edited by TJ222 on 6/19/2008.

 Spam post or abuse? Please let us know

Dear Jemiejedi,

I have been living here for 30 years, and I have seen this scenario before. The pound drops, mortgage rates go up, house prices drop, unemployment goes up, etc. At the moment, and in the next few years, I would only purchase a second property anywhere if I could afford it without lending money. One post already states that having a property in Spain is a luxury and not a need. The amount of properties already on the market for sale and for rent, mainly because of the need to cover debt repayments make it very hard to rent out for a decent return. The other thing you want to cosider is moving here with an 11 year old. Although that is not a bad idea, as the living standard is good, and it is a great place to bring up children, I would not consider it without a guaranteed income for at least one of the partners. This does not include the employment in the very unstable labour market of telemarketing, sales, opening an English bar etc.

Although it is true that there are more and more good bargains to be had here, the running costs are more than just a mortgage: community fees, IBI, Basura, water, electricity, etc. as you already stated, which normally also go up every year. 

Your best bet is to try your damndest to get your deposit back, (difficult) and rent a nice place for your holidays on the Costa. Once you sell your property in the UK, you are a cash buyer and can make a well educated and researched desicion where to move to. (Schooling, jobs, infastructure etc.)

Good luck,

 Spam post or abuse? Please let us know

Hi  Jeimiejedi      Your plan is very dangerous as regards trying to find a long term renter there is so many for rent as stated before, the rent for a 3 bed 2 bath apatment on the cds is in the range 750 -1000 e. per month but thats far too high for most of the Spanish so it would be a renter from outside Spain ,it also depends on the location of apartment ? the property cycle mostly goes in 10 years up / down .We remember the last one in Spain with all the empty unfinished buildings sitting there for years this is not a short term blip we think it will slowly drop for about 5 years , some agents will tell its all still moving but thats nearly always pie in the sky and they are trying to keep the prices up for there own ends, you only have to read what is really going on with many builders going up the wall ,you can try for your money back but its very unlikly it will be given. If you are going to live in Spain now thats different  as you are buying for a life styl if i was in your position rent for holidays and look again in 5 years or if you have loads of spare cash find a good spot.        regards rosi n

 Spam post or abuse? Please let us know

Yes walk away it is not worth the headach,  we will all have enough to cope with the rising food and energy prices at home on top rising intrest rates,  i walked away last year but managed to get my deposit refunded and i am so glad i did after seeing repossesions on the same apartment block already,  Good luck and take care.

 Spam post or abuse? Please let us know

Good points guys, but don't forget to spare a thought for those of us who are stuck between a rock and hard place.

I purchased off plan in 2004 when the going was good. Only now 4 years on am I finally approaching completion. Obviously in that time I have paid not only the initial securing deposit, but a further 25% then 15%. The result is although I would rather not now go ahead with the completion, I unfortunately have no choice.

I too was reeled in by the 'buy then sell before completion' line from the enthusiastic agent. Fortunately I am very shrewd, so I also budgeted for the event that we would not be able to sell on before completion, although even I did not foresee such a massive negative force emerging all together at the same time. Rising living costs, lousy exchange rate etc.

I would wholeheartedly reiterate the comments of the others. If you do not have to buy now, don't. Worst case scenario - take the hit for the 6000 euros. If you go ahead and things get worse you could potentially lose a lot more.

Don't worry about me, I will be able to ride this one out. However, I believe I will be one of the lucky ones.

Ken.

 Spam post or abuse? Please let us know

walk away and chalk it up to experience.

But before you do here's quick question, if it doesn't rent can you afford to keep it?

It's not walk away, it's not worth the stress. As others have said, sit on the sidelines build up your cash and come in a get a great bargain.

Also for the kids it's better to move earlier than latter, at 11 the adjust will be very difficult. Had a family friend over she's 16 came when she was 11 and fit neither in Spain or in Britain, she's a 3 country child. didn't speak enough Spanish to make Spanish friends and left all her British friends behind (home schooling didn't help) over all she's a very well balance kid and her parents should be proud of her.

 Spam post or abuse? Please let us know

"Don't worry about me, I will be able to ride this one out. However, I believe I will be one of the lucky ones".

No, Kenny, you were right first time - shrewd, not lucky. Good luck, enjoy your new home, and remember there's always someone worse off.

 Spam post or abuse? Please let us know

Cheers Rob,

Just a word for those 'sitting on the side lines' waiting to swoop in and bag a bargain. I have friends who have been willing the demise of the UK housing market since 2000. By the time you decide that prices have bottomed out they will probably be on the up again and you will never end up owning anything.

Ken.

 Spam post or abuse? Please let us know

That is true!
if you a life style buyer then it all comes down to location, a flexible budget and being able to buy

Better buying now at stable prices than when you are under 'pressure' to buy now, because the price may be higher ' next week' !!!

Life Style buyers are medium to long term and enjoyment.......so when everything starts to get back to normal say circa 2010 any good buys now will , I suspect, look very good

But how much does that matter.....life is for enjoyment

But make sure that you deal with professional people and that you treat buying the same way as you would in UK.......be a touch objective! 

 Spam post or abuse? Please let us know

Especially if you are fortunate enough not to need finance. I was thinking about this today while contemplating the plummeting stock market (I read a report this weekend that predicted the FTSE100 could go as low as 2000). If it's for your own use and enjoyment, and for the long term, then why not buy? After all, even if in a couple of years your property is "worth" half what you paid, the property will be the same and you'll still be able to live in it, but if you put the money into stocks and shares and lose half their value, you've got half what you had before.
I guess it depends very much on personal circumstances.

 Spam post or abuse? Please let us know

Hi All

I would walk away from the 6000 euros i know its hard and you have a dream in your head to own a property in spain but walk.

Im due to complete in 4 weeks i moved to spain 5 weeks ago with wife and two kids we put a deposit down of about 65000euros 
And im so confused. do i complete and put more money in for fees etc air con furniture garden etc maybe another 25000euros
or do i walk now while i can and get about 12000euros back from builder and rent for a couple of years then buy a bargain?
or do i complete knowing deep down that the house has 90000euros of my hard earned money and more than likely i will have negative equity in it.

WHAT DO YOU DO FOR THE BEST?????????

Iain

 Spam post or abuse? Please let us know

Do remember that your developer does not want a property on their hands either and a lot of developers are prepared to negotiate downwards at the moment in order to keep a buyer on board, otherwise they are left funding the building costs which will not be covered by your loss of deposit, it is often worth them droppong 10K to keep someone sold, 

Ask the question, they will probably play hard ball, if they do call their bluff and say we are walking away, the legal process of you missing deposit payments will take a few months in spain anyway....he will deal in the end.

Its also woth pointing out to him that it is worthwhile losing your deposit, because you can now get a bigger discount on a better apartment down the road from a developer that wants to sell their apartments!

there are 1000's of half built and empty apartments on the CDS its a buyers heaven at the moment - I recently heard of 800K penthouses being sold for 600K at the moment....thats worth losing a 20K deposit for, if you are considering buying a 700k home, there are deals like that all over the place, worth calling Dream Homes Worldwide they seemed to know their stuff and where the deals are when i bought from them. 

good luck

 Spam post or abuse? Please let us know

In answer to the initial post whyever did you put the deposit down in the first place  as you said it was only a month ago ? The crunch hasn't just started, it's been here some time now. Cut your losses, pull out !! (Just my humble opinion.)

Tuesday, June 17, 2008 Jamiejedi Parcela I've made 4 posts Send private message to Jamiejedi

Hello from a New Member We are in the process of purchasing an apartment on the Costa Del Sol and paid the 6,000 initial reservation deposit a month ago. Our intentions were to rent it out long term for a few years and take holidays there.   We would then move over to live in Spain when our child gets to say 11 years old. The process has been ongoing for a couple of months now and we are close to paying a 10% deposit to secure the deal. Considering what has been happenning recently with increasing prices for Mortgages, Food and Fuel, we are having serious second thoughts. Does anyone believe it is a good time to buy now or am I better off playing safe, cutting my losses { 6,000 euros } and walking away. We have secured a substantial mortgage which has high monthly repayments so if the Credit Crunch gets worse and prices continue to rise then we will be in serious trouble. Wlii we be better pulling out and looking to buy in Spain in a few years time when the prices and the economy are hopefully more stable? Any advice would be appreciated. Thank You

 Spam post or abuse? Please let us know