MORE WOE BROUGHT ON BY CREDIT SQUEEZE

Another lender has today advised revised criteria as a maximum of 60% of purchase price or valuation whichever is the lowest. They were offering 70% of value up to 90% of PCP. Gradually all the banks are revising their products and it seems this will start to become the norm - musing with a colleague about 4 weeks ago we even speculated the Bank of Spain may direct lenders to cease lending to non residents - a year ago I would have said unthinkable - now I am not so sure.

I see their point of view but to be honest probably shutting the door after the horse has bolted. I question whether this will in fact generate more problems for the banks as it perpetiuates a vicious circle. If they make it harder to acquire a mortgage in Spain (assuming their income and asset criteria are met) then it will be harder for an owner with income/debt problems to sell their property. Thus it is likely to impact on their bad debt book and make it harder to recover profitability. Without doubt things have been too lax for too long and some very bad practices being followed (or at least due diligence not being followed and the correct checks and balances) and stricter controls need to be in place but not sure that reducing loan to values is the solution to their problem - personally I think it exacerbates it and that they might live to regret the course of action.

The sad thing is that we never seem to learn from our mistakes - I have no doubt that when this is all over and things have started to recover (you can tell I am an optimist at heart despite my efforts to prove otherwise) they will all have forgotten previous experience in the chase for more and more profits - and so the cycle goes on!!

OH FOR A CRYSTAL BALL!!!!! 

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This is a huge problem in this area too,there are a few banks that will not lend to non residents at all.
The banks now are so tight on their lending criteria that in essence that are actually adding another thorn to the rose that was the Spanish property market.
The problem is that they created their own problems by lending money to anyone and everyone,the only lending criteria they used to have was "pulse and a passport!"
When you do get clients that still have faith in the market and are looking for as mortgage the banks are very quick to rain on that parade(the only bad weather we get fortunately),unless of course a minimal mortgage is required.
What they are doing is closing the sweet shop door and all the children with rotting teeth that once gorged themselves,filled the tills and were welcomed whole heartedly now find themselves faced with the sign "No Children allowed."
Rather than admitting blame themselves for giving cash away too easy they seem to think the option is to keep what they have,sit in an empty branch and wait for the winds of change to blow,not a great business model and something that will not help anyone in these times of worldwide pesimism.

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As I said Georgia - simply worsening the problem

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Interesting reading guys!

Methinks that if indeed Smiley is correct, and let's face it he usually is, then I would speculate that if they continue with this 'over' tight grip on handing out mortgages to non-residents, that it can only further harm a already struggling housing market.

Indeed should they cease lending altogether to non-residents, then one might further speculate that the Spanish housing market would collapse over night!

However this increased 'inwards turn' could have a 'silver lining' in that I notice that the Euro today is weaker against the Dollar, Yen and even Sterling. If this continues and we start to see the 'good ole days' of 1.40€ to £1 then it could in fact help the housing market, due to a mix of lower property prices and good exchange rate, thus improving a flagging economy.
 

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I suspect that the heady days of 1.40 will not be seen again for a long time. Sentiment, business, media and the consumer seem to want to push sterling interest rates lower (despite no change today) and I think the ECB will maintain their strong stance on Euro rates for a while longer. While the Spanish housing market will only have any chance of revitalisation with a reduction in Euro interest rates (there are a significant number of other factors as well and not solely dependant on rates) the ECB is managing the overall Eurozone not simply the Spanish economy and how its affected by property markets. My speculation was exactly that pure speculation - amazing the turnround for at the start of this year three of our lender partners were taking a very full on aggressive approach to win new business - particularly halifax with a repricing of all their products and increased lending targets etc - on the other hand if they can amend their stance so quickly one way perhaps they can change their stance as quickly the other way if we start to see signs of recovery - hmmmm is that a squadron of flying pigs overhead?

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A friend of mine tells me that the banks in his area have frozen loans / mortgages to promotores that have already been approved.  

i.e. all contracts are signed, money put aside by the bank and then "sorry, mate, you're not having it!"

As you say, they are making matters worse - but wasn't it the world banking system that dropped us all in this s%%t in the first place with sub-prime wifebeater mortgages, begging 10 BILLION from good ole Gord to bale them out, betting on the futures of oil and gas etc? 

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What area is your mate in? Apparently there are a couple of lenders that have major liquidity problems and are unable to lend on the developer loans - only heard about it in Murcia and a lot depends on who the lender is of course - quite how that leaves the buyer and the legal situation over completion i dont know?

This message was last edited by Smiley on 9/4/2008.

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Sadly its all panning out exactly as I feared it would almost exactly a year ago when I first started the "credit crunch" thread.

"However this increased 'inwards turn' could have a 'silver lining' in that I notice that the Euro today is weaker against the Dollar, Yen and even Sterling. If this continues and we start to see the 'good ole days' of 1.40€ to £1 then it could in fact help the housing market, due to a mix of lower property prices and good exchange rate, thus improving a flagging economy."

Unfortunately I fear the opposite. It now appears that the UK is the weakest G7 country, all Gordon's miracle economy has been seen for what it is = an illusion based on nothing more than massive levels of debt.

The situation in Spain is I think worse, but Spain fortunately is protected by being part of the eurozone, so Spain along with the other PIGS will be spared complete ruin. Noone to bail out the UK except for the IMF. Are we due a repeat I wonder.

Brown's "rescue" package for UK housing is at best pathetic and at worst down right criminal. To offer first tiem buyers an interst free loan to get further into debt and buy a falling asset is nothing short of criminal. 

The answer to the UK's and the rest of the western world's problems is to get back to spending what people earn rather than what they can borrow and to let housing prices come crashing down. The debt needs to be purged from teh system and interst rates need to rise to stop inflation and to encourage savings and investment.

The last decade has been a terrible experiment in missallocation of capital, brought on by cheap credit. Imagine if the trillions that were spent on unproductive housing had insted been spent on re newable energy and productive industries. then we would have had a strong economy and productive sound jobs and would be able to compete in the world economy.

Sadly history shows that govenrments will try their hardest to avoid this purging healthy recession by propping up house prices and non productive jobs. History shows this is how to turn an ordinary recession into a depression.

There was no real wealth created by property, only debt and the illusion of prosperity.

Housing in the US is half the equivalent price in terms of wages to Spain and the market is still dropping like a stone. I still see another 50% off Spanish property to bring it into line with real wages. No doubt it will overshoot this to the downside. 

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Hi Smiley,

He's down in Amuñecar, Málaga and my parents live in Fuengirola.  They both say that all construction has stopped, leaving concrete skeletons everywhere.

I have also spoken to property management companies in the course of my Maximeters business who say that people who have bought-to-let are in big trouble as no-one has come this year and they need rentals to pay the mortgage.

Hi TJ222,

One thing I never understood - why the newspapers (EVEN the Daily Mail sometimes) said that Gord was a good chancellor.  (Mind you, they also said that Dr David Kelly committed suicide!!!).  He was a C%%P chancellor.  He inherited a brilliant economy in 1997 and immediately started to micro manage the stuffing out of it.   The man who stole your old age threw money at every cause, taxing and borrowing, trying to buy votes. 

As I have said before on these pages, Britain has had it - it's all over.  The fat lady has sung!  Not just the economy, it's everything.

Was it Churchill who said that taxing a country into wealth is like standing in a bucket and trying to pull yourself up by the handle?

Unfortunately, I think that under Zapatero, Spain is going the same way.  No fiscal control, no discipline in schools or the streets, the invidious slime of political correctness corroding society.  O.K.  I'll shut up now.

 

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Blimey and all i wanted to do was let people know lenders tightening their belts further still - didnt realise it would open up conspiracy theories about David kelly etc - to be honest I didnt know he had ever been the Chancellor - sorry Max just the way you worded it but i do know what you mean. Dont know of any lenders that have taken Amuñecar off the lending list specifically - can understand the skeletons as there are a lot of them across Spain and as we know construction not the flavour of the month. While the holiday rentals are certainly tighter i think a lot depends on location, location location. I know many people that are doing well but then they are very proactive in who they speak to and how they market - they dont simply rely on Fred Smith to get it let for them. Occupancy levels were maxed in Marbella during the summer and to see the traffic you would never have thought there was a problem. Restaurant owner friend of mine has had a better summer than 07 - thats not to say the belt tightening is over but it does perhaps reflect the fact that the area from Malaga to Sotogrande has a certain cushion - probably not a deep cushion but there nevertheless.

Took a look at your thingy and seems a good idea to me - someone mentioned to me about 4 years ago they were trying to develop something similar without success so good luck with it Max - would have thought of great benefit to rental property owners. 

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Thanks for the positive response to the meters, Smiley.

I agree that the Marbella region is cushioned as it is the richest area of Spain with regards to tourism, foreign ownership.  I don't see many humungous properties in the rest of the places I visit like the ones I see between Gib. and Marbella. 

I think your friend is very fortunate (intelligent in the choice of his location!), as many bars and restaurants are closing down.

I guess when you have a few hundred million floating around, you can say "crisis - what crisis?" and still go out every night for the beluga and chips.

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TJ you'd be interested in knowing that you are starting to see serious price drops around Madrid. Walking by an agents office and saw nemerious properties that had slashed there prices by 50.000 euors. Ouch.

Also the next credit crunch. Credit Cards, Americans are maxing out there cards to make ends meet, but that is soon set to end as banks tighen up on credit.

Very interesting reading. http://money.cnn.com/2008/08/18/news/economy/Colvin_next_credit_crunch.fortune/index.htm

Also some interesting and short commentary here http://www.europac.net/# from Dr Doom as he's known states side

This message was last edited by Rob in Madrid on 9/5/2008.

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"The answer to the UK's and the rest of the western world's problems is to get back to spending what people earn rather than what they can borrow and to let housing prices come crashing down. The debt needs to be purged from the system and interest rates need to rise to stop inflation and to encourage savings and investment."

Let housing prices come crashing down!!!!!!

Either you don't own properties, with mortgages or without, or you're a conservative, or both!

ANYONE who owns a property in the UK, Spain or anywhere else in the world, with a mortgage or without, does NOT want the price of their investment to go down!

When you purchase property, with a mortgage or not, you do so as an investment and want that price to go up, unless of course your just a 'rental agent' and have no concerns with property prices, as you don't own any properties yourself and are pushing people to rent.

What is it you do for a profession again TJ?

And do you rent the property you live in?

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PS. Do you think that the greatest Super Power in the World is going to let themselves fall into anything like the depresions they have suffered in the past?

One word : NO

The federal reserve slashed interest rates early on in order to stabilse the economy and stop it nose diving into recession.

Result, even though the 'credit crunch' was caused by American Banks over extending themselves, take a look at the Ameican Economy and the Dollar.

Nuff Said.

World, wake up and smell the coffee. Don't worry about inflation if everyone is unemployed, on the streets and can't afford a home!

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Think hes an investment banker Techno - and nothign to do with rental market - his perception is actually very good and he has made some excellent posts elsewhere on EOS regarding credit squeeze - I THINK he has sold any property that he did own but was in Asia for a while before moving to Spain - I have to say his is a cynics view and perhaps why I can relate to it so much - but he bemoans the fact that the global financial superpowers of yesteryear have eroded their real wealth by a perception of wealth that is based on debt and bricks and mortar but dont really have a bearing on how truly "wealthy" in real terms one might be. Basically a house of cards that needs a huff and a puff and t will blow the house down - well we are currently seeing a bit of a huff and a puff.

Not sure the US recovery will happen quite the way you see it - not sure they are quite the superpower they once were - in order to help get out of depression they started supplying munitions to a country that needed to fight a major war - let us hope it doesn t come to that again! Lets not forget how long they were in depression before any recovery started. Not sure that they have the ability to keep themselves out of depression now that the Tiger and Russian etc economies are so strong. methinks they perhaps too insular for their own good.

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Look at it this way:

Your born, you have a short life and then you die!

During this fleeting time that we have on this planet, what would you rather do:

a) Borrow money and pay through the nose for a property that one day will be yours, which you can then bequeath to your family.

or

b) Pay through the nose for a rented property, one that the rent WILL increase over time as other market forces cause the owner to increase said, knowing that the property could be sold from beneath you at any time, that the property will NEVER be yours, you will leave NOTHING behind for your family, and having NOTHING to show 'you were here'!

I am just FED UP to the back teeth with all this doom and gloom over the credit crunch and the problems with the property markets, which by the way is affecting many more countries other than Spain and the UK.

We all know what is going on, and are all praying it will end sooner rather than later, however what I am trying to say is that ANYONE who owns property does NOT want that property to fall in price!

 Only those who don't own property want the price to fall, so that they can swoop in like the vultures they are and try and pick the juiciest morsels for themselves, and during these times will try to portray themselves as the 'devils advocate' when in fact the perpetuate the evil themselves.

The evil what I speak of is pessimism.

This message was last edited by TechNoApe on 9/6/2008.

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We are all guilty, as Peter Simple would say.  We have all bought goods from China without a thought to the consequences.

Here's a small example.  A Spanish friend of mine here in my village has a market stall selling clothes - you know the type, jeans, shorts, T-shirts etc. etc.  He had 6 matronly ladies working for him in his property as seamstresses making these clothes.  

He told me recently, that it is cheaper to go to the Chinese warehouse in Alicante (or wherever) and buy the gear and bring it back to market.  His profit levels are the same but the clothes sell at a lower price for better competition.

What's wrong with this picture?  I'll try some....

1)  Six seamstresses out of work.
2)  Suppliers of material lost another customer
3)  ??gallons of heavy oil burnt in transporting these items to Spain + equivalent pollution
4)  China now has our money - it has gone out of circulation.
5)  Six weekly dole payments for the government

We have all seen articles about young children working in appalling conditions for 2€ per week, living in dormitories etc. etc. 

So, the question is....if our collective governments (rightly) prevent children working in factories, have health and safety regulations (never seen any in force in Spain though!), and tax their businesses from the word go, why are we allowing goods into the west from countries that have no human rights.  Is it O.K. that these people are the other side of the world - out of sight, out of mind?  I'm as guilty as anyone of buying Chinese goods but what will happen when there is nothing else?  Think it impossible?...about 15 years ago, I went to Woolies to but a birthday present for a child.  I wanted not to buy Chinese for the above reasons.  There was not ONE TOY ITEM that was not made in China.  Even the "names" like Hasbro.  Mind you, you had to look hard.  Often the box would have a UK or US address, but somewhere on the box, in tiny print were those words: "Made in PRC".  
Here's a thought for Dubya - China owns more dollars that the whole of the world outside the US of A.  A bit of tail wagging dog methinks! 

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Hi Techno like you I do own property however I am not a pessimist - merely a realist. Like you I would prefer it if property prices were to go on rising but property is indeed cyclical and has happened before we have hit a peak and there is now going to be a period of correction. TJ tends to say it how it is and his opinions are based on analysis of history and trends and he uses well thought out argument to make his point. It would be wonderful if we could see a steady value/price increase year on year that stayed moderately ahead of inflation but that tends not to be the way with bricks and mortar - it tends to be the flavour of the month for a certain time frame and then the plug gets pulled or bubble bursts however you wish to word it and there is a correction. It has happened before and no doubt it will happen again. The hope is that one doesnt get caught in a position of having or being forced to sell at a time when the market is correcting. I agree with you that renting CAN be considered dead money - however if one is paying 1000€ per month in rent and could then buy that property for 50,000€ less 2 years later could it not be said that was good judgement and that. At the moment in Spain with the current levels of rental property available rents are not going up - in fact they are not even static and are falling. There will be a period of time until the available stock gets used up or some initiative is launched that will help to protect the Landlord in Spain against tenancy rights, where rents will not increase. Thus there is no particular incentive to the property investor - no potential capital gain, no realistic rent either - thus why bother to buy? Ultimately I am positive about the long term prospects but there are going to be a great many factors that will need to improve - not just here in Spain but elsewhere in the world - before the recovery comes - I am sure it will but the question is how long it will take to arrive. In the words of Churchill - this is not the end, nor is the beginning of the end - hopefully we have already reached the end of the beginning - apologies to Winston for the slight mis-quote.

Max I think the tail is probably stronger and wields more power than the dog these days - probably has done for some time. Add to that the other two tails of Russia and India - very soon I think the dog might start walking tail first - hmm does that mean backwards?   

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Hi Smiley,

From the point of view of the west, it will definitely mean backwards - both fiscally and for the man on the street (sorry - that's non-PC - for the person on the street!).  

Just saw that Wimpey posted 1.5 BILLION loss this quarter.  Is this due to competition from MacDonalds and Burger King?

Sorry.  I promise better jokes in future.

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Max, you done it again!
There's not much that makes me laugh out loud, miserable old biddy that I am......................but you have managed t twice in the last couple of weeks.............................
Quote:
Just saw that Wimpey posted 1.5 BILLION loss this quarter.  Is this due to competition from MacDonalds and Burger King?
Brilliant!!!!!

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