British Banks and mortgages in Spain

Having been arranging mortgages in Spain for over 13 years I feel like we at Fluent Finance Abroad, are well placed to inform you of how British Banks faired when it came to lending in Spain.

When I arrived in Spain back in January 2004 I walked into a frenzy of Spanish mortgage lending activity.

It seemed that there were hundreds of lenders all competing for the flurry of consumers from Spain and other parts of the world that fancied a flutter on investing in the Spanish property market.

Not only were Spanish lenders open for business, but there were a huge amount of foreign banks obtaining lending licences so that they could dish out cash on Spanish shores.

Who were the main players that were involved in lending in the Spanish property boom?

Well we had lenders from countries like Denmark, Holland, Norway, Sweden, Switzerland but the most prolific were the British banks.

For years UK banks were a high street presence in Spain and it was a common sight, especially in coastal areas to see Halifax Spain, Barclays Spain, Lloyds International Spain, Abbey National.

We also had lenders pass-porting in from Gibraltar of course, these included the likes of RBS / Nat West, Leeds Building Society or Norwich & Peterborough and they all seemed to be enjoying capturing a huge amount of new business and their respective head offices were keen to keep this going.

Why were British lenders so popular in Spain?

There are 3 main reasons;

1. They were attractive to the biggest buyers of Spanish property which were buyers from the British Isles.
2. They understood the income verification paperwork which would be presented by British clients, especially the self-employed British entrepreneur or property landlord.
3. All British banks offered the holy grail of interest only Spanish mortgages that the Spanish banks were not prepared to offer.

All the reasons above seem reasonable at the time but then came the credit crisis.

Spain was hit extremely hard when credit markets dried up, but not only were Spanish bank hurt when the crisis hit.

British banks were equally affected, we all remember Northern Rock & Bradford & Bingley having to be turned into the bad bank of the UK.

British banks suffered so badly in the crisis they packed up their bags and left Spain pretty quickly and refused to lend anymore although they had huge toxic mortgage books which needed to be sorted out and cleared off their balance sheets.

Halifax Spain was sold to Lloyds and then Lloyds International then sold themselves to Banco Sabadell who now own TSB which split from Lloyds a couple of years back.

What’s the problem British lender face now?

This is a simple question to answer.

As most of the Spanish mortgages UK banks gave out were done on an interest only basis, the debt has not reduced down over the years.

The issue is that Spanish properties have reduced in value by as much as 70% in some areas and therefore many UK borrowers in Spain are now left with massive negative equity against their Spanish property.

The Interest only term do not go on for ever meaning that UK banks can now start calling in the debt.

This means that even if the owners sell their properties, they still have massive debts still to pay back to the bank which most borrowers are unable or unwilling to do.

Don’t despair, you must realise that this is as much of an issue for the British lending institution as well as it is for you, there are many reasons for this but a main one is that it can be a long and costly process to take legal action against a Spanish mortgage non payer.

The banks that are affected by negative equity issues in Spain are Banco Sabadell, Lloyds International, Halifax Hispania, Leeds Building Society Spain, Norwich & Peterborough, Nat West RBS Spain & Gibraltar & Jyske Bank.

If you have a mortgage in Spain that is in negative equity you do need to speak to a Spanish mortgage expert at Fluent Finance Abroad, we are able to guide you and help you give the property back to the bank, using current Spanish mortgage law, and leave the debt being 100% covered by the asset in question.

If you use current mortgage law in Spain, you are able to repay the whole debt, including community fees and property taxes by giving back the property.

You do need to know the law and therefore Fluent Finance Abroad Mortgage Brokers are best placed to assist. We have a mortgage in spain calculator you can use to test what you can afford.

Case Study:
Mr. JM bought in 2007 in Duquesa with a 100% mortgage from Halifax Spain for 275.000 € on an interest only basis, the debt never reduced and today the property was valued at 120.000 € meaning the client had a 155.000 € shortfall.

His bank, now Sabadell, informed him that his interest only payment of 500 € per month was ending and that his payments were rising to 2300 € per month which the client could not afford to do.

He approached us and we successfully managed to give the property back to the bank, witnessed by a Spanish notary issuing a certificate of full payment, meaning the client walked away from a serious debt in Spain.

The client had a number of property assets with equity in them so the fact that he has a legal document stating that he didn’t have a debt in Spain means that he and his family can sleep well at night knowing that the Spanish lender will not seek repayment via the county court system in the UK or Ireland.

If you have any questions please get in touch with us and speak to one of our a Spanish mortgage experts who can advise you and can help in many ways.