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100% mortgages may be Immoral

03/11/2010

There are offers of 100%, mortgages being given by Spanish Banks. These are leading us down the path again that started it all in the US.

The mortgages are given over the properties at above market values (probably the value of the original loan of the property they have 'possessed'). That removes a bad loan from the bank's 'books'. The borrower maybe thinks that there is no harm in that as it gives him a house for nothing or very little. In fact he is taking on a personal debt for the difference between the banks selling price and the true current market value.

And what if he can't keep up the payments or needs to move on? He is in an instant negative value equity situation, plus the 10+% costs of house sale, and is competing against banks offering 100% when they will maybe only offer a max 70% mortgage on a house they are not selling directly from their 'stock'. Banks have also been reputed to offer 100% loans on neighbouring houses they are selling, when a buyer has been introduced for a mortgage by an independent seller.

The buyer then either defaults and the bank takes back its property to do the same again, but for a while having removed it from its books and received some payments; or the buyer drops the price to sell it and accepts the loss, and lowers the comparative market value of all around even further. Leaving the bank, the borrower, the neighbours and eventually the country with an even bigger negative value of assets to loan.

The banks doing this knowingly are therefore acting immorally. Always find out the real value of a property before buying and if you cannot yourself, get an independent market valuation.

Copyright
Campbell D Ferguson
F.R.I.C.S. Chartered Surveyor
Survey Spain
00 34 952 923 520

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