Mortgages

Mortgages and Valuations

Recently we have been organising a lot of mortgages for people, extensions to existing ones, new mortgages for buyers and mortgages for those who already have a house but need to finance renovation or just want to release some money. So we thought it was time to explain the rather eclectic way that banks grant mortgages here.

Firstly, the price of the house bears no relation to the mortgage offer. The only thing that matters is the valuation because a percentage will be offered based on that valuation. The valuers are independent from the banks supposedly so give a true market valuation. (And I am Santa Claus) Our best disparities are the following, a house for sale for 327000 Euros was valued at 760000 and one for sale at 220000 was valued at 144000 because it was on rustic land. Therefore it is quite difficult to give an accurate idea of how much the bank will offer a potential purchaser unless you can get a prevaluation from the valuer who will be valuing the house to give a rough idea of how much will be offered.

Secondly you will need quite a lot of papers to get a mortgage, all of which can be organised but you need to be aware that the papers the bank originally ask for will possibly need to be complemented by your life story as the process moves along. Expect a non resident offer of 70% for the mortgage based on the fairy story of the valuation but 80% can be obtained for “good” clients. For good read rich!

Lastly, the rules have recently changed in banking to not allow the declared price of a house to be less than 80% of the mortgage amount. To give an example if your mortgage is 200000 Euros you must declare at least 160000 Euros on the deeds even if your actual purchae price bears no relation. This is an attempt by the government to put pressure on the banks to stop overlending and to put an end to the practice of underdeclaration on the deeds. If in the above case the declared price was 150000 Euros there would now be supposedly an immediate investigation by the taxman into the operation. Also let us assume that you were buying for 250000 Euros in the above case, the procedence of the extra money must be accounted for, where did you get it from? Our advice is that it is stupid to underdeclare by 90000 Euros on a sale because the taxman will catch up with you. Decide yourself which is better, 7% tax on purchase price or 30% on capital gain on sale price if and when you move (For non residents, residents pay 15%).

Rates remain low with the average mortgage currently being set at 3.5% but expect that rate to change to around 4% by the end of the year. Rates are fixed in general for one year and then variable every year after at Euribor base rate plus a differential which varies between 0.5% and 1.25% depending on the client, the bank and the risk involved.