It is now a buyer’s market for property investors in Spain, Portugal and the USA, yet investors are increasingly being frozen out of mortgages overseas even though rates have hit all time lows. So how can investors get their hands on the best deals?
There has never been a better time to invest in holiday properties in Spain and Portugal or even further afield in the US, prices are up to 60% below their peak in 2007 and you can now buy a luxury apartment for less than €200 a month. Developers who once had it all their own way are now falling over themselves to tempt overseas buyers back in which means 5-star luxury is now well within the reach of average buyers.
It’s all good, apart from one small obstacle
There is just one thing standing in the way of making the most of these once in a lifetime market conditions – mortgages. Unfortunately banks in many of the most popular overseas investment locations are making it virtually impossible to lend on the open market.
The overseas mortgage market has changed dramatically since 2008 and not for the better. If we look at some of the extremes we have seen in the past 5 years - for example in 2007 – you could readily achieve 80% mortgages at reasonable rates of about 4% and, in some cases, even interest only.
Just three years later in 2010 when the mortgage market had really started to freeze up in most overseas holiday destinations, you could hardly find any available finance for property. In the US, for example, LTV mortgages have dropped to 50% for overseas buyers.
For those requiring new lending, the situation can be just as difficult as we head into 2012. So what’s the solution?
Finance from distressed developers is the key
If a bank is currently involved in the financing of a new development they will be keen to deleverage themselves of the current risk they hold – this is where you will find that most loans are now being issued in countries such as Spain and Portugal.
This provides an easier route to buying distressed housing stock which we believe is still the best way to profit from property overseas. Banks in both Spain and Portugal need to deleverage themselves from developer debt, so where a bank needs to recycle money it is no coincidence that loans can be approved more easily.
Buyers are purchasing property at fantastic prices compared to four years ago as a result. Currently if an investor is in a position to purchase at 25% – 50% below market value and secure a mortgage from developers at 0.5% over Euribor then this is a great opportunity to take advantage of yields approaching 8% in the best coastal locations of Spain and Portugal.
Have you found it more difficult to get a mortgage overseas? Please share your experiences below.