If someone thought that the Spanish property market couldn't go down any further they are mistaken - 2013, will see drastic reduction in prices. Here's why.
In 2012, this was how it worked: You purchased a property with a mortgage of 80% for urban or 70% for rural properties. The mortgage was calculated, not on the purchasing price, but on the banks estemate of the value, which usually was higher than the actual price. This ment, that most people could get 100% financing on their homes. Then you paid around 8% purchasing tax, based on the official price. For tax reasons the official price was much lower than your actual purchasing price (in all Spanish house sales, there is a moment where the lawyer "has to go to the bathroom", and leaves). Also the official price was used to calculate your annual property tax. The purchasing tax and the interests on you rmortgage where deductable. Notice that we are dealing with 3 prices on the house, the actual purchasing price, the official purchasing price and the estimated value of the property.
In 2013 the government changed the rules, so that the purchasing tax and your interests no longer are deductable. This alone would lower property prices. But the banks decided to join the game. They decided, that your mortgage now must be calculated against your official price. Not only does this give people smaller mortgages, but also increases the amount of which you pay both purchasing tax and annual property tax. I have seen people put in a higher offical price (= more tax) than the actual purchasing price, just to get 100% financing. This would be bad enough for property prices, but the banks had one more ace to play. They declared rural properties high-risk, so they are only mortgaged at 50% now. They also declared all foreigners high-risk borrowers, which means, they get lower mortgages rates and can't get mortgages on rural properties.
So the property market is getting a triple whammy this year.
Banks, still give 100% financing (to just about anyone) on their own repossessed propeties.
Makes you think.
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