However, Fluent Finance Abroad said this needn’t be the case. “Nobody could prepare for this pandemic,” founder Marc Elliott de Lama commented. “Since Prime Minister Sánchez declared a state of alarm [emergency] on March 13, the property market, like most of the economy, has effectively been put on ice. But, once restrictions are lifted, buyers will have to fulfil their purchase contracts or face losing a hefty deposit. With financial uncertainty gripping the UK, many of our clients are worried if they have sufficient liquidity to complete - we think a Spanish mortgage could provide the answer.”
Elliott de Lama said that, regardless of whether a buyer has signed up to an off-plan deal, a rent-to-buy scheme, or has already placed a non-refundable deposit on a resale property, a Spanish mortgage might help them move forward on the purchase, without using up all their valuable cash reserves. Keeping cash reserves in play is something ‘at the forefront of our clients’ minds during this unprecedented pandemic’, Elliott de Lama added.
He says short-term, flexible, over-payment mortgages are available here, which means borrowers don’t have to be tied into a long-term arrangement and can cancel the mortgage at any time, without incurring heavy redemption charges or cancellation fees.
“Age is not much of an issue, as Spanish banks are able to lend on pension income. Sharing the financial burden of completion with a Spanish bank could be the difference between securing that home in the sun or walking away and losing funds already invested - and the dream.”
Average mortgage interest rates in Spain are very low at present, around 2.5%, and likely to remain that way as Europe feels its way through a post-crisis recovery, Elliott de Lama explains.
“Furthermore, the mortgage debt is against the property in Spain and therefore will not affect your creditworthiness or credit score in your home country, neither will it hinder your ability to obtain credit back home,” he continues.
“It’s also worth bearing in mind that equity release is almost impossible in Spain, so if buyers are under the false impression they could release funds from their Spanish property at a later date, they should always buy with a mortgage and keep cash reserves in the bank.”
He added: “While we’ve never had to navigate a pandemic, as a business we have been through various crises and recessions, and therefore have an unrivalled insight into the current market turmoil.”
Fundamentally, he says, western economies were in fairly good shape before this unforeseen turn of events, so ‘my guess is that after a sharp correction of say 10 to 20%, prices will rebound pretty quickly’ - especially as governments and banks will pump liquidity into businesses and get them back on their feet.
In a similar fashion to the global financial crisis of 2008, he predicts that hotspots such as Marbella and Mallorca will be less badly hit.
To back this up, he points to the last figures compiled by the National Statistics Institute before the Covid-19 outbreak took hold, which showed that ‘tourist’ areas such as Andalucía and the Balearics posted very healthy demand, with house sales rising 8% and 8.2% respectively versus February 2019.
Elliott de Lama says Brits have a huge influence on the Spanish property market, with between 800,000 and one million British homeowners in Spain - although only approximately 300,000 are residents.
According to the Registrars Association, Brits currently account for 13% of all foreign buyers, down from a peak of 22% in the first quarter of 2016, pre-referendum and pre-devaluation of the pound.
Experts believe, however, that British demand will pick up if and when Brexit negotiations reach a favourable conclusion. The UK government resumed talks with the EU last week, although there remains some considerable uncertainty over whether a comprehensive trade agreement can be agreed upon by the end of December 2020.
Mortgage approvals, valuations and completions are all still possible during the Spanish state of emergency – which is slowly being lifted over the coming months as Europe seeks an exit route from the crisis.
The Spanish government set out on Sunday its plans for a slow return to normal life, with the government set to permit adults to go for walks and exercise outside their homes from May 2 if the country’s death toll continues to fall.
Spain currently has the second highest official number of deaths in Europe and had one of the strictest lockdowns of anywhere in the world – with children only allowed out for the first time in six weeks last weekend.
But there does now seem to be some light at the end of the tunnel. “We are beginning a gradual process of reactivating the economy,” Teresa Ribera, one of Spain’s deputy prime ministers and a leading figure in planning the phasing-out of the lockdown, said.
She added that the reopening of normal life would be ‘sector by sector’ and would require co-ordination with other countries, especially within the EU, ‘which will allow us to work towards a common road map’ towards ending severe restrictions.