Mortgages in Europe tighten further

The availability of mortgage finance to UK buyers in struggling eurozone countries has reduced significantly in recent months – with lending for holiday homes in Greece and Portugal hit the worst. According to brokers, mortgages for second homes in Greece, the country at the centre of the eurozone debt crisis, is currently non-existent. Most international and local banks are no longer lending to non-residents as a result of the country’s deepening debt troubles, although it may be possible to secure finance direct from a Greek bank. “Greece has been pretty much shut for business for a year now,” says Sean Adams of Savills Private Finance. “We’ve had some really attractive property deals recently – including someone who was buying a house for €2.5m and only wanted to borrow €500,000 – but we couldn’t even place those type of deals.” While there are a couple of Cypriot banks that will lend on Greek property, Clare Nessling of Conti, the overseas mortgage specialist, says processing the mortgage can be very difficult and the number of cases that complete are “few and far between”. In comparison, there are a number of banks that are still lending on Portuguese property. However, mortgage rates in Portugal have rocketed upwards this year – particularly on remortgage cases. “Remortgaging is becoming so difficult because rates are so high,” says Nessling. Borrowers who are currently looking to remortgage holiday homes in Portugal are seeing their rates increase from around 3 per cent to as much as 7 per cent. “In the riskier markets, rates are going up and the terms available are becoming stricter,” says Simon Smallwood of International Private Finance. But, in spite of the high rates and the country’s continuing debt problems, demand for property in Portugal is still high. According to Adams, he has had more Portuguese mortgage applications on his desk in the last two months than in the last two years put together. For Portuguese property purchases, the best rate currently available is through Caixa Geral de Depósitos at 5.56 per cent – the six month euribor rate (the rate at which banks lend to each other) plus 3.75 percentage points. This is available up to 80 per cent loan-to-value and comes with a fee of €750. For loans of more than €1m, borrowers can secure a variable rate of 5.1 per cent through a private bank. This is available up to 60 per cent loan-to-value and has a 1 per cent arrangement fee. Smallwood believes the Portuguese market will recover in the near future. He points out that it does not have the same oversupply issues that the Spanish market has suffered, and it has consistently been a popular second-home market for the past 30 years. Lending for mortgages in Spain has remained stable, according to mortgage brokers, with rates only increasing in line with the euribor rate. Mortgages are available from as little as 3.6 per cent at up to 70 per cent of a property’s value. Even so, brokers say they are not seeing huge demand for Spanish mortgages. “People are being much more cautious,” explains Nessling. “There are bargains to be had out there but you’ve got to be in a position to take a bit of risk.” While there are concerns that the eurozone debt crisis is spreading to Italy, mortgage rates there have remained largely unchanged. However, mortgage options for UK buyers applying via brokers are largely limited to one provider: BNP Paribas. The lender has a rate of 3.7 per cent – three month euribor plus 2.1 percentage points – available up to 80 per cent loan-to-value, with a 1 per cent fee. For Britons seeking a French mortgage, though, there are more finance options and lower rates than in the countries most affected by the eurozone crisis. While some banks had previously tightened their lending criteria due to concerns about exposure to the Greek debt crisis, this is no longer the case. “Competition for good clients looking to purchase second homes is increasing, with lenders improving products, terms and rates,” says Smallwood. He says this is in marked contrast to to the negative changes to lending criteria being made earlier in the summer. Mortgage rates are available from as low as 2.7 per cent – three month euribor plus 1.1 percentage points – for up to 60 per cent of a property’s value and with a 1 per cent fee. A ten-year fixed-rate mortgage will cost 4.1 per cent from Credit Foncier, available up to 80 per cent loan-to-value and a 1 per cent fee. Smallwood says that borrowers with holiday homes in struggling eurozone countries should remember there are significant regional differences in the availability of lending. He points out that it is much easier to get mortgage finance in popular areas where there is a limited supply of property – such as the Balearics in Spain, Tuscany in Italy and the Golden Triangle in the Portuguese Algarve. “Financing for the purchase of a second home is easier but it’s harder to raise capital against unencumbered property, refinance or raise finance for investment purposes,” Smallwood adds.