The Spanish real estate market continues its recovery phase following the economic crisis and is proving to be an attractive sector for investment. This applies whether through the purchase of a primary residence or as a result of acquiring a second home , the latter being more suitable for investment transactions. In any case, thanks to the reactivation of the real estate market, these transactions can become an alternative source for generating returns on your savings in the medium to long term.
The lack of returns on international stock markets in recent months is leading many people like yourself to seek alternative ways to grow their wealth. Furthermore, fixed-income derivatives (time deposits, bank notes, bonds, etc.) are not performing well, due to the European Union's monetary authorities lowering interest rates.
These products rarely exceed a 0,50% return on savings. Therefore, the outlook for your money isn't the best. You'll have no choice but to turn to other markets where you can make these moves more effectively. And among all of them, the real estate market is once again emerging strongly. Or, in other words, buying property as a way to make your investments profitable from now on.
Investment in brick returns
This sector is closely linked to the Spanish economy and was severely impacted by the economic crisis. However, it is now regaining its role as a safe haven asset given the limited guarantees currently offered by most banking and financial products. According to several industry studies, the potential for appreciation in property purchases is once again attractive to investors . And specifically, acquiring a second home is one of the most effective ways to maximize returns.
To this end, you have an increasingly attractive range of mortgage loans available. This is thanks to the decrease in the margins of the Euribor, the benchmark mortgage index. Indeed, it's currently in negative territory, so you can take advantage of this situation to purchase a second home primarily for investment purposes. Currently, some loans of this type offer a spread below 1%. This means you'll be paying less in monthly installments from now on.
What do these operations consist of?
Buying a second home would serve a dual purpose. On the one hand, it would allow you to take advantage of the current economic climate to increase your assets. On the other hand, it would provide a return on your investment, either by selling it once its value has increased or by renting it out , even just for vacation periods. This additional income will be very welcome and help you balance your budget. It will simply require more substantial savings than other investments.
This is the moment to realize this investment through a very dynamic and clearly expanding market, driven by the positive economic data the sector has shown in recent months. Indeed, these acquisitions have often materialized as investments, fueled by significant price increases that have led many to achieve excellent capital gains.
Housing operations grow
The recovery of the real estate sector in Spain is leading to an increase in the number of contracts for the purchase of second homes in recent months. The Housing Price Index (HPI) for the second quarter of 2016, published by the National Statistics Institute (INE), shows a 3,9% rise in transactions. This figure highlights the increased dynamism being experienced in this economic activity.
This is an option for allocating savings after the weak returns generated by bank products (deposits, promissory notes, etc.). These returns rarely exceed the 0,55% mark, due to the lower cost of money. This is even competing with the lack of confidence the stock market inspires among investors during the first nine months of the year, where the Ibex 35 is not performing as small and medium-sized investors expected. Instead, taking advantage of the better interest rates offered by the markets, some investors are opting to buy a house at the beach or in the mountains, either for personal enjoyment or as an alternative investment strategy.
Less amounts, but cheaper
Mortgages for the purchase of a second home are being formalized under different contract terms than those for a primary residence. Contrary to what might initially be thought, they don't offer more advantages over the traditional financing model. On the contrary, they are more stringent products in terms of the loan amounts and repayment terms. However, they can be obtained at lower interest rates than a few years ago due to the decrease in the benchmark index to which most variable-rate mortgages are linked.
Indeed, the Euribor has moved into negative territory, a historic low in recent months, falling to 0,059%. This is a significant drop from the 5,384% it reached during the height of the economic crisis in 2008. Therefore, these types of mortgages for real estate transactions are cheaper to obtain than before, provided they have a variable interest rate. In this regard, the latest data from the National Statistics Institute (INE), corresponding to June 2016, shows that 76,6% of new mortgages use a variable interest rate , compared to 23,4% with a fixed rate. The Euribor remains the most widely used reference rate for variable-rate contracts, accounting for 93,6% of new agreements.
Characteristics of these mortgages
Mortgages for second homes follow very well-defined commercial guidelines. They offer lower loan amounts compared to the purchase of a primary residence. Banks typically lend no more than 75% of the appraised value. Another characteristic of this financing model is its longer repayment terms, rarely exceeding 25 years . This is because the typical borrower is older, often over 45. As a result of this specific contract, the repayment period must be shortened.
Given these constant market trends, financial institutions have promoted an offering designed to meet these needs. In some cases, this is done through dual-purpose loans, meaning they can be used for both primary and secondary residences, although the latter option is marketed with different terms . In other cases, they offer proposals specifically developed for these real estate purchases. In either case, they are taking advantage of the excellent interest rates offered by their promotions. The most aggressive offers even provide a spread of less than 1%.
What credits can be contracted?
Ibercaja has designed the Evoluciona Mixta 5 Mortgage , intended for the purchase of second homes. It offers a maximum loan amount of 70% of the property's appraised value. The interest rate is initially fixed for up to 5 years, and then 2,50% for the remaining term. However, this rate can be reduced to 1% by meeting certain requirements. The mortgage has a repayment term of up to 30 years.
The Variable Rate Mortgage is Banco Santander's answer to families' housing needs. It is indexed to Euribor + 0,99% from the third year onwards, and 1,75% for the first two years. In its version for second homes, it finances 70% of the purchase price, with a repayment term of no more than 25 years. BBVA, with a different approach, is offering the Fixed Rate Mortgage. Its interest rate varies depending on the agreed repayment term, ranging from 2,51% (for a maximum of 15 years) to 2,85% (20 years). In all cases, it finances 70% of the new property. Applicants must have a regular monthly income exceeding €1.500 to qualify.
The ING Direct Orange Mortgage is another alternative available to users to carry out this real estate transaction. For an amount of 75% of the appraisal value, provided that the operation is formalized from 50.000 euros. From Euribor + 0,99%, with a minimum of 9 and a maximum term of 40 years. Another of its contributions is that it is made free of commissions and other expenses in its management.
Oficina Directa offers a rate of Euribor + 1,10% with no fees. It covers up to 60% of the purchase price, with a maximum loan amount of €600.000 and a 30-year repayment term. Its main advantage is that customers can benefit from an improved interest rate, with a bonus of up to 1%, through direct deposit of their salary, home insurance, and the use of their credit cards. Openbank's mortgage offers its customers a rate of Euribor + 1,25%, provided they meet its terms and conditions. In addition to the above, it requires direct debit of household bills. It finances 70% of the purchase price with a maximum term of 25 years. It focuses on loan amounts starting at €50.000 and has no fees. Another benefit is that it allows for early repayment without penalty.