Tancrede de Pola (OP Columnist)
THE news that BBVA is bringing back 100% mortgages for resident buyers in Spain should be a cause for concern for some.
Before the great 2007 crash, most banks were far too happy to hand such mortgages out, but the disaster that followed changed after millions of homeowners were left unable to pay back their loans, leading to financial meltdown from which we have only just recovered.
It has been almost 10 years but BBVA are one bank in many to bring back the controversial offering of 100% mortgages at fixed or variable rates for residents willing to purchase from the bank’s stock.
In some cases the loans include all the expenses of the purchase of a property especially where the property values much higher than purchase price.
It means if the purchase value of a property is €100,000, and the appraised value is €130,000, an 80% loan would amount to a €104,000 mortgage.
Therefore, the bank pays the total €100,000 euros that the apartment costs, leaving the buyer €4,000 towards completion expenses.
This new breed of 100% mortgages carries some serious risks, and these days that risk is taken on by you, the buyer, rather than the lender.
You are likely to face higher fees and charges and you will have fewer deals to choose from if you don’t put up any capital. The buyer is limited to properties held by the bank that rarely, these days, represent good value for money.
Although lenders may have found a new way to offer 100% Spanish mortgages by asking borrowers to contribute additional security, nothing much has changed in that they put buyers at risk of negative equity – a much greater risk than a buyer who has contributed financially to the purchase. Equally, the higher loan amount means higher monthly repayments which may make future rentals less viable.
In addition, buyers should be prepared to pay extra for a Mortgage Indemnity Guarantee. This is an insurance policy to protect the lender against loss if the buyer defaults.
So although it may be a tempting offer, only those with extremely secure finances should consider 100% mortgages.
