Tuesday, December 30, 2008

Is the bottom of the housing pyramid stable? Here it might well be.

So how far will prices fall in the housing market? Estimates of the UK market this year vary but about 15% would seem to be the average. However where is the bottoming out point of house prices in the UK and elsewhere? As prices fall the possibility for first time buyers to get into owning a property grows and surely this means that at some point the demand outstrips supply and prices bottom out and maybe even start rising again. The issue at the moment would sem to be lack of lending by the banks and building societies rather than lack of real demand, nobody can get a mortgage.

Anyway in Spain and, more particularly for me and this blog Valencia, the government is going to force lenders to do just that, lend, very soon. So it is possible to look at a potential bottoming out of the market in the following way. The average Spanish person earns around 1500 Euros per month and when both partners in a couple earn that, then they have 3000 Euros income with which to play with at the bank. The banks will use around 1000 Euros per month as a rule of thumb for repayments. At an interest rate of 4% which will be in place by about March time this would mean repayments on a loan of some 200k would come in at around 958 Euros pcm over 30 years on a repayment mortgage. Therefore we can surmise that any property under 200k has the potential to be bought by these new first time buyers and properties around the 100k mark can be bought by those average wage single people who are looking to buy. So has Spain reached the bottom? Well there are a few other factors to consider but bear in mind that the cheaper areas of Valencia are now seeing properties in the 100k mark and other provincial capitals the same and there is a good possibility that it may have in the cities where demand is still good. However the negatives that need to be sorted are as follows;
1) The banks will only give up to 80% of price.Therefore people need to have saved 20% plus costs of purchase or have, more usually, a family member who can supply them with it.
2) You need to jump through a lot of hoops to get funding at the moment.
3) Interest rates at 4% may well drop in the short term but be aware that if they went up to 6% where they were a few months back then repayments would be 230 Euros pcm more (More or less)
4) Oversupply of rubbish on the coasts.

The good news is that buying BMV property in Spain now and renting it out will give a really good return if you can get the mortgage as an interest only loan on a property at 100k will cost about 350 Euros pcm and return some 550-600 Euros in rental. (Remember I am talking about cities not the coast)

For any advice regarding your mortgage or investing in Spain then get in touch with me. We may be able to get you a much better deal than you would otherwise be offered. And remember also that the lifestyle here and the cost of living is certainly cheaper than the UK or many other areas despite the drop in value of the pound.

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