|
Spanish Housing Minister Carmen Chacón has confirmed that the Spanish real estate market is continuing to slow with prices likely to rise by only around 4 or 5 percent this year after climbing 5.8 percent in the first six months, the slowest pace since the start of a decade-long property boom.
Chacón said the trend points to a “gradual adjustment” in prices following 10 years in which prices rocketed by around 15 percent annually. She also rejected the notion that Spain could face a mortgage crisis similar to the one unfurling in the United States that has rattled financial markets worldwide. “A mortgage crisis is not going to happen,” Chacón said.
However, many analysts disagree. According to figures from the Bank of Spain, Spaniards are currently dedicating 45 percent of their pre-tax income to repaying their mortgage, 10 percentage points more than the absolute maximum banks have long recommended. Part of the reason for the increase in monthly payments has been the recent rise in euro-zone interest rates, which have climbed from 2 percent at the peak of Spain’s property boom in 2005 to 4 percent today. That is an additional E160 per month that a homeowner with a typical E150,000 mortgage spread over 30 years has to come up with. Over that period, salaries have increased only marginally.
As a result, there is growing evidence that a possibly considerable number of people with a significant amount of debt are severely overstretched, particularly those who bought property at the peak of the boom in 2004 and 2005 at over inflated prices.
Flexible rates and interest "shocks"
Part of the problem is that the vast majority of mortgages taken out in Spain are at a flexible rate of interest, and if interest rates continue to rise it is probably only a matter of time before cash-strapped homeowners run out of places to look for the extra money.
Bank of Spain figures show that the number of loans that went unpaid in the first quarter of this year amounted to 0.46 percent of all outstanding debt, compared to 0.41 percent at the end of 2006. That increase may not look like much, but it amounts to almost E2.45 billion in bad debts out of total outstanding mortgage loans of E526.7 billion at the end of March.
A recent report by Fitch, a rating agency, noted that Spain, like the United States, has experienced the greatest “shocks” from rising interest rates. If rates continue to climb, it is very possible that Spain could be facing its own debt crisis.
|
