Mallorca & Spanish Property Market Update – “Banks will lend when prices stop falling”!

Por: Novi Property Mallorca  17/06/2009
Palabras clave: Property for sale in mallorca, chartered surveyors in mallorca, Mallorca property market

 The president of the Spanish banking association, Miguel Martin, suggested that bank lending conditions will not improve until “the fear of a property price collapse” has passed. 

While any lender or indeed buyer will want to be fully aware of the likely impact of future price falls on their lending / investing decisions, it is hard to see any light at the end of the tunnel when the banks adopt such negative behaviour. Lenders can manage their risk through applying more conservative LTV ratios and seeking assurances as to the ability of the borrower to repay.

If banks believe prices will fall a further 15% for example all they need to do is reduce their loan amount by the same %. That said most buyers are only buying when prices fully reflect not only the price falls to date but also an element of the downside risk that still exists regarding possible further falls so, in reality, the bank is already protected as long as they lend on the lower of purchase price or value.

While none of us want a return to the irrational lending practices of the banks during the boom years it is essential that the banks now play a role in preventing a property price slump even greater than the market needs to return to equilibrium, and that will only exacerbate the situation in the future with sharp rises once banks start lending.

What the market needs is a steady flow of reasonably lent mortgage finance to allow the market to find a floor and to ensure that when prices start to rise they do so only moderately and in line with general price rises and underlying economic growth. Otherwise all they will do is contribute to a repeat of the boom and bust scenario.

For similar stories see "Mallorca Property News" and the  "Mallorca Property Market Blog"

Palabras clave: chartered surveyors in mallorca, Mallorca property market, Property for sale in mallorca,