Anyone who has lived in Spain for a few years will remember the heady days when you waltzed in to any well known Spanish bank and said “I am thinking of buying property, can I have a mortgage” answer was always
SPANISH MORTGAGE MARKET CHERRY PICKS DEAD CERTS

The Spanish mortgage market has been up and down like a proverbial fiddler´s elbow over the past few years but news came to me yesterday which makes me think that buying property is not at the top of most bank´s wish list when looking for new business.

Anyone who has lived in Spain for a few years will remember the heady days when you waltzed in to any well known Spanish bank and said “I am thinking of buying property, can I have a mortgage” answer was always “how much do you want”.  The required papers for the transaction were minimal and so long as you had one head and two eyes equidistantly placed you were guaranteed the deal would be done and dusted within 4 weeks.  Not only would they lend you whatever you wanted, they actively engaged in foisting more money on to you than you needed.  I had a very interesting conversation with my bank managed when I decided to buy an apartment in Cadiz City.  He said “how much do you want” I told him and he looked almost hurt.  He said “but that is only 80% of the price of the house and the taxes, don´t you want more”  I said “what for, I am only buying property in Cadiz City not half of the Costa de la Luz” and he said, “don´t you fancy a holiday or a new car or something”.

Sadly it would appear that a bank manager  of the breed who not only wanted to finance your house purchase, your social life and your outward displays of affluence  is a breed unlikely to be seen again in the near future.  If you can remember far enough back,  before the world crashed into the financial abyss it now appears to be languishing in, I am taking about the days when you changed your car like your underwear and competed with a Times travel columnist to have more holidays than any of your friends and associates in the same year.  Buying property was a run of the mill event, you looked for a house, you got a mortgage, you worked to pay it – job done.  Apparently it does  not work like that now there is a whole under current of banks sculpting the home owner market to what gives them greatest security not what sells houses and puts decent ordinary people on the home owner ladder.

Life has hit the hard bed rock of reality and when that happens it is the little people who tend to get squished.  I had a couple of clients the other day.  Young Spanish couple, two kids under 5 years old, they have been in rented accommodation and living with their parents since they got married and have managed to save up the deposit for their first family home.  Now normally people start house hunting before they go to the bank.  Not these sharp cookies, they spoke to their bank 5 weeks ago to suss out what the monthly  repayments would be and therefore what they could afford to spend.  They showed all their personal papers and were told how much the bank would loan them based on their income.  They went house hunting and found a nice little property on our website.  Back they went to the bank to make the arrangements,  only to be told that the bank could still give them the mortgage but not at the rate they had offered 5 weeks ago.  The new rate was so much higher that they would not have been able to make the repayments.

They phoned me to ask what they could do,  so I told them to go along the road to another bank who have always been good with our clients.  They called half an hour later to say that the rate offered was much better but because they were not existing clients the bank would only give them 80% of the house purchase price without the taxes.  Effectively they had to put in 20% of the house price plus another 10/12% on top to pay the tax.

How many young couples do you know who have 31/32% of their first house purchase put by and  ready to go.  If that had been the case when I bought my first property I would still be living with my parents.  I remember my fiancé and I  foregoing a holiday, nights out and new clothes plus putting all our bonuses and spare cash away for a year to get 5% together.

The whole thing rang alarm bells.  So I trotted off for a coffee with my friend from the bank to see what the inside story was.  “Well” he said, “the banks don´t want to lend on property due to the downturn.   They are designing the mortgage packages to cherry pick prime clients.  They want to ensure the deal is low risk and the clients have a good lump of their cash in the pot to prevent any chance of defaulting on the loan and leaving the bank with a house in negative equity.  At one time you were guaranteed 80/90% of the valuation of the property.    Now they will only give you 80% of the actual purchase price no matter whether it surveys way over the asking price and no lending to cover taxes”.  So it would appear that your average high street Spanish banks are purveyors of umbrellas so long as it is not raining but when the droplets start to fall – forget it.

So much for the Government´s  instructions to the banks that they must recommence mortgage lending.  They obviously forgot to add “but not at rates and with conditions which cut out all but the most prime borrowers”.  So if you are anywhere between 18 and 30 and do not have a pot of money then forget it and keep lodging with your mum, at least she will do your washing and you can be assured of a hot meal when you get home from work …….. it sounds pretty idyllic actually.

I have heard horror stories of people sitting in official offices with someone keeping watch at the door while large brown envelopes of money were counted and exchanged, like some clandestine exchange of government secrets by two characters from a cheap spy thriller.  They don´t have unmarked drops in secluded woods  or write messages in invisible ink but it is pretty cloak and dagger and certainly not something to be discussed at a polite gathering.

Black money is not an invention of the Spanish and hard cash is common currency in countries which have experienced civil unrest or civil war in living memory.    People like to have a bit of cash on hand  “just in case”.   If you need to pack up and move in a hurry then cash is good.  You are not going to end up with your life savings stuck in a bank where you cannot access it, just as you need to leave the country.  Likewise, some cash can smooth your journey as you flee an area or country.  Crossing palms with silver could mean the difference between survival and death. When the crisis is over the desire to be in control of your money stays and people prefer to have a mattress full of bank notes than a cheque book or credit card.

A distrust of government and a dislike of banks also plays a part.  The Spanish do not like the thought that your money is somewhere that the government can keep their eyes on it or in the hands of some organisation who might do something silly with your hard earned shekels.  Perhaps we in the UK should have been more cautious about giving the banks free reign with our wealth!!
The downside to black money is that you can never use it legitimately.  You cannot buy investments with it as the government will wonder where you got this sudden wealth from and you cannot use it to pay the mortgage of domestic bills if times get tough.  I once asked a bank manager friend what you could do with this dodgy currency and he said buy a car, buy a boat or go a holiday.  Fine if you fancy any of those options but tough if you are suddenly made redundant and need to draw on your savings to get by.

The problem  with black money is being the last in the chain.  The practise is dying out and will one day gasp its final breath and then anyone who paid black money when buying property will be stuck with the big bill because they will have to declare the full value of the property on the paperwork and pay up accordingly, so think carefully before you get involved with the practise.  It is not legal and you may end up being the Patsy.