Mark Stucklin
Mark Stucklin is the author of ‘Need to Know? Buying Property in Spain’, published by Harper Collins, and writes the Spanish Property Doctor column for the Sunday Times. He also writes about energy efficiency and how to save money at home.
A sign of the times – a mortgage that costs nothing
A Spanish savings bank offers to lend money for free, at least for 3 years. A mortgage with no interest or capital repayments at all for the first 3 years, and no capital or interest roll up for later years. A loan with no admin fee (apart from notary costs, I guess) and a LTV of up to 90%. What is going on?
Valencia-based Bancaja, the savings bank in question, is desperate to shift some of the properties it now owns. By offering free mortgages it hopes buyers will be tempted to take many of those properties off its hands. The offer only applies to homes that belong to Bancaja or one of the developers it has financed, which is the key to understanding this promotion. It’s bad business for banks to be lending money for free, but if it means getting properties off the balance sheet, well, it might be a price worth paying.
If inflation picks up, as many expect it to, this offer represents a nice little discount for buyers. Assume inflation of 4% p.a: A loan of €200k would only worth around €177k in real terms after 3 years. Of course if they are using this promo to try and flog over-priced property then you wouldn’t be getting such a good deal after all.
For the time being at least, Spanish lenders are doing everything they can to avoid dropping their prices to where the market really is. Doing so would mean recognising losses on their loans, which they can’t afford to do. So, in the meantime, mortgages for free.
It’ll be interesting to see if any other Spanish lenders follow suit.