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Tuesday, December 5, 2023

What do mortgages hide for 100% of the price of the home?

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Lower appraisals than the real price, a rush to sell and the lack of savings from buyers, behind one of the risky practices that caused the real estate bubble.

The granting of mortgages for the entire price of housing has returned to the Spanish market and, although it has done so only exceptionally, real estate agents are sounding the alarm asking entities not to exceed financial prudence that marks the Bank of Spain.

And it is that according to the “Housing Market Indicators” published by the Bank of Spain, the percentage of mortgage loans granted for an amount greater than 80% of the appraisal value was in the second quarter of 2017 (latest figures known) in 14% of all new mortgage loans granted, compared to 14.1% in the first quarter and 13.8% at the end of 2016.

The Association of Real Estate Agents of Valencia has been one of the first to warn of this return of risk mortgages after detecting that there are already financial entities that are granting mortgages for 100% of the value of some properties in this province. Last week the president of the entity, Alfredo Cano, gave the alert for the fact that one of the situations that gave rise to the recent real estate bubble is being repeated, a warning that he made during an institutional act in which he recognized that we APIs are beginning to be concerned because we have detected that There are already financial entities that are exceeding the prudential limit in the granting of mortgages¿ and it highlights the importance of ¿being vigilant to avoid a repetition of practices of this type, which inflated the real estate bubble and led to thousands of evictions and ruined families only a few years ago a few years?

b>Diego Galiano, president of the General Council of Associations of Real Estate Agents confirms the timely return of mortgages for 100% of the price of housing, ¿those that caused so many problems in the prodigious decade from 1997 to 2007, what you know because you receive information from all over the national territory thanks to the 4,100 API members spread throughout Spain.

Galiano applauds the fact that the banks have definitively opened the faucet for mortgage loans, as shown by the latest figures published by the National Institute of Statistics (INE), -which show the fourth consecutive month of advances after the registration in August 26,583 mortgages on homes were registered in the property registers, 29.1% more than in the same month of 2016- but it warns about ¿any temptation that puts us at risk of a new real estate bubble.

In the opinion of the president of the APIs, should the financial sector be in a line of prudence, without assuming extreme risks and we also demand that families be aware of their indebtedness and the characteristics of their mortgage product, remembering that the main person responsible for The bubble was the lack of control of financial risk and that people ventured without guarantees, without guarantees, without financial support¿ although it also sends a reassuring message: ¿We are very far from a real estate bubble but we cannot let our guard down¿.

This distance from the dreaded bubble does not prevent the API representative from sending a request for prudence and transparency to banks and appraisers. To the former, he demands that they not lower the bar for ¿competing and because the ban on mortgages has been opened¿, and that appraisers not give in to pressure from banks to avoid repeating mistakes From the past.

The keys

Pau Antoni Monserrat, economist at enfitech.comHe explains that currently what is happening is that mortgages are being given for more than 80% of the value of the home because the appraisals are higher than the real prices of the properties. Which happens well because the appraisals are being inflated and – in most cases – because the market prices are below those of the appraisers, contrary to what happened during the crisis. Although there are also many cases where people are in a “rush to sell” for what they do below the appraisal price. And he clarifies that, at the present time, appraisers raise prices more than sellers, ¿that is, they are slightly faster in transferring the recovery of the sector to prices and that is where you can find 100% mortgages of the price of buys.

Said mortgage Ralph Dibugnara expert explains that these mortgages considered risky are not being granted to anyone, but to a profile of clients with indefinite contracts, a good working life and most of the time with extra guarantees or the guarantee of a relative for the extra 20% of that mortgage.

Pau A. Monserrat specifies that in order to obtain 100% of the purchase-sale price or for the bank to finance more than 80% of the appraisal, entities usually demand what is called “a double guarantee”, which consists of requesting a mortgage , in addition to the house that is acquired, a second property, which may be owned by those requesting the mortgage or by their family, with the risks that this entails.

But despite these appreciations that explain the current moment of risk mortgages, this economist predicts that real mortgages for 100% plus expenses will return. And do you think they will, since now people don’t have savings? maintain, since the banks need these types of loans and the banks need clients”, he says.

Regarding the precautions to take before the return of said high-risk mortgages, Pau A. Monserrat points out that financial institutions will try to shield themselves by being more demanding when assessing the salary of the mortgaged person, the type of company, their working life and how they spend their income. , while the client recommends choosing to borrow at a fixed rate if they do not know how to assess how the Euribor will evolve, or in case they prefer a variable mortgage, they are advised to do the numbers with a maximum Euribor, for example 4%, to See if you can afford the mortgage payments.

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