Mallorca Property Market & The Falling Euribor

Por: Novi Property Mallorca  14/01/2009
Palabras clave: Mallorca property market

 Both Mallorca property owners and potential buyers will have both sought at least some comfort in the recent dramatic falls in the Euribor (interest rate most commonly used to calculate mortgage payments in Spain) but what impact will these falls have on both these groups and will they stimulate a recovery in the Mallorca property market?

Firstly, those most likely to gain are existing property owners. Most Mallorca mortgages are on annual reviews such that any mortgage reviewed from December 2008 onwards should see repayments reduce significantly as a direct result of the falling Euribor. The situation for new buyers of Mallorca property will be less clear unless they take over an existing loan, something which is quite common in Spain.

The main reason why new buyers will not benefit to the same extent is because lenders have raised the risk premiums they charge in anticipation of higher default rates, and thus overall interest charges, while less than they would have been 12 months ago, will not fall as dramatically as the fall in the Euribor. Where a buyer "subrogates", ie takes over the loan from the current owner or builder, they could well get a better deal than taking a new loan as the risk premium is likely to be lower than what a bank will offer in the current climate. In addition there are much lower costs involved in loan "subrogation", compared with new loans, another benefit of looking carefully at this option.

In relation to what impact these changes will have on the overall state of the Mallorca property market, and downward trend, don't expect miracles. In the short term at least the wider economic backdrop is far more significant and will remain the driving force behind market movements. On the positive side falling interest payments could spare some property owners from the increasing risks of default and reduce the number of new "distressed" sales. This in turn will provide at least some underlying support to the market.  

Palabras clave: Mallorca property market