<p> As of November 2012 two year month on month mortgage approval rates have more than halved. That is to say that in August 2010 more than 77,000 mortgages were approved, in August 2012 only 35,000 mortgages were granted. The halving of house sales over the two year period also coincides with an estimated 20-30% drop in house prices from peak. </p><p> The initial reaction to these statistics is hardly one of surprise. The lowering of values is a necessary normalization of a property market that had been growing exponentially for too long. We know many developers here in Valencia that will not take on projects with a less than 15-20% yield, companies built on the philosophy that construction costs must be amortized in between 5-10 years. One can imagine with this business model the profits that must have been accumulated over a 20 year period, but also the scale of the debts and obligations they have taken on. Most of Spain's bad debt is issued to construction companies who can no longer afford to maintain huge mortgages or even finish projects started 3-5 years ago. </p><p> In a huge country with almost infinite construction space (for those with the right contacts), astronomical yields over the post-Franco era led to the price conditions we are observing now, that there is a huge oversupply of properties disconnected from the real economy. Here in Valencia the average wage is around 1000e a month (12,000e P/A) with decent properties traditionally starting at 150,000e or more. Even in today's property market we have sellers asking for 120,000e or more for a second hand, 1-bed apartment in non-exclusive areas. </p><p> Back to the subject of mortgages, this is an interesting one right now. </p><p> The days of 100% mortgages are long gone, but the lending conditions have become very partisan. There are many disgruntled home-owners who suggest that banks are offering more favourable conditions to buyers of their own property. That is to say that buyers are requesting loans and being rejected, but also told by the bank they can be <a href="https://www.home247.co/%E0%B8%82%E0%B8%B2%E0%B8%A2%E0%B8%95%E0%B8%B6%E0%B8%81%E0%B9%81%E0%B8%96%E0%B8%A7%E0%B9%81%E0%B8%A5%E0%B8%B0%E0%B8%AD%E0%B8%B2%E0%B8%84%E0%B8%B2%E0%B8%A3%E0%B8%9E%E0%B8%B2%E0%B8%93%E0%B8%B4%E0%B8%8A%E0%B8%A2%E0%B9%8C%E0%B8%A1%E0%B8%B7%E0%B8%AD%E0%B8%AA%E0%B8%AD%E0%B8%87-%E0%B8%88%E0%B8%95%E0%B8%B8%E0%B8%88%E0%B8%B1%E0%B8%81%E0%B8%A3/" alt="ตึกแถวมือสอง จตุจักร"> ตึกแถวมือสอง จตุจักร</a> offered a mortgage, but only to buy one of the banks properties!! </p><p> It's an interesting theory and a quite logical one in that the risk of default against one of the banks own properties holds very little risk to the credit liabilities of the bank. It is quite hard to tell if the current unease with lending conditions is due to discrimination and fear, or simply a normalization of a market accustomed to 100% mortgages. </p><p> We met a potential buyer recently who wasn't approved a mortgage for a new-build property valued at 120,000e. "The mortgage is only 300e per month," they told us, "yes, but what deposit do you have?", "Deposit? What do I need that for?"... </p><p> Data if provided by Fotocasa which is the biggest property website in Spain, the equivalent (although not as dominant) as Rightmove is in the UK. </p>
