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May 2008

9.5.2008 - Interest Rates Held On Inflation Fears

European Central Banks and the International Monetary Fund (IMF) joined in unison yesterday to highlight fears of inflation for global economic growth. Both the European Central Bank (ECB) and the Bank of England's Monetary Policy Committee (MPC) kept interest rates on hold in the face of persistent global inflationary pressures caused by soaring oil, commodity and food prices and the continued weakness of the dollar.

At the same time the International Monetary Fund (IMF), that marked an abrupt change of tone from its emphasis on the risks to growth, also highlighted inflation as the greatest threat to the world economy (see FT article "IMF warns on global inflation")

What does this mean for Mallorca property owners and buyers?

Firstly and obviously mortgage rates are likely to remain at current levels. With the Euribor at around 4.85%, and at an average bank margin of 1%, buyers of new property in Mallorca will be looking at an interest rate around 5.85% (better deals are available particularly for residents, and non residents that are able to put down sizable deposits. Contact a good Mallorca mortgage broker for the rate comparisons)

For existing property owners on fixed or annually reviewable rates, repayments are likely to increase given that much of the interest rate rises have come over the last 12 months (the silver lining is that we should be at or near the peak in the current interest rate cycle and thus at future reviews repayments should start to fall)

The weakness in Sterling against the Euro is likely to continue although many commentators feel that there is now only a limited downside risk to a further fall in Sterling and that the current exchange rate is likely to be maintained in the short term (Sterling is predicted to strengthen against the Euro towards the end of 2008 and beginning of 2009). Sterling denominated buyers should consider exchange rate strategies to help manage this short to medium term weakness and take advantage of future appreciation in Sterling later in the year. Contact Novi Property Mallorca for further information.

Dollar denominated buyers are likely to face a further deterioration in the Dollar / Euro exchange rate so again strategies that delay converting dollars to Euros will be the order of the day.  

Is there a silver lining to all this doom and gloom? While inflation is never good in the long term, for existing property owners at least it means that the real value of their mortgages are falling, while for buyers, assuming nominal property prices stay stable, the real value of property is falling and thus this could be a good time to buy before there is a return to more benign economic conditions.

News story supplied by Mallorca Property News (www.mallorcapropertynews.com)

8.5.2008 - Spanish Inheritence Tax

Owners and buyers of Spanish and mallorca property beware. Spanish inheritence tax is a complicated business based on the different relationships between the donor and the receiver. Particularly at risk are unmaried couples and step children.

For all the background information you need see "Spanish Succession tax for Cohabitating Couples and Remarriages" on Spanish Property Insight.

News Story from Mallorca Property News (www.mallorcapropertynews.com)

3.5.2008 - Mallorca Mortgage Woe

The Euribor, the key reference rate for Spanish mortgages, finished April at 4.82%, the highest in 8 years, increasing annual repayments on an average mortgage by approximately 600€ p.a.
The key question amongst property owners and buyers alike is whether these increases will continue and, equally importantly when can rate falls can be expected. Largely the Euribor owes it's historic highs to the European Central Bank's current base rate and more particularly stated interest rate policy. The ECB is maintaining a hard line on inflation and thus looks set to maintain rates at current levels for the foreseeable future. Rates are however expected to be brought down towards the end of the year, as inflationary pressures reduce. As these decreases become more likely and imminent, general European market rates, including the Euribor, are also likely to reduce and enter a period of slow and steady decline. As most mortgages in Spain are on an annual review cycle consumers may have to await some time for repayments to fall, and indeed may see repayments increase before they fall again dependent on when the mortgage is reviewed and where discount rates were being paid.
Story supplied by Mallorca Property News (www.mallorcapropertynews.com )

3.5.2008 - Mallorca Property Affordability

 

New statistics from the Bank of Spain show that purchasers of property during the first trimester of 2008 allocated on average 37.1% of their gross annual income to make the acquisition, 2.3% more than the same period last year and the highest since 1995. The figures show that property buyers are having to make an ever increasing financial commitment to acquire a home. In 2005 the figure stood at 25.5% and 2006 29.9%.
Another indicator demonstrating the decreasing affordability of housing in Spain is that highlighting that an average size 94 m2 property values up at a multiple of 7x average gross family income.
In relation to property prices latest date from the Ministry of Housing highlight that prices rose by 3.4% in the first quarter of 2008, nearly half that of a year ago when the figure stood at 7.2%. The 3.4% increase is below that of the retail price index in Spain of 4.5% indicating that real values are falling for the first time in recent years. As indicated in our article (International Monetary Fund Claims Spanish Property to be 20% Overvalued dated 23rd April) it is anticipated that while Spanish property prices are likely to fall over the next couple of years this is likely to be achieved through inflationary erosion rather than actual nominal price falls. This is very relevant for potential purchasers who have been sitting on the sidelines awaiting for prices to fall when in reality nominal prices at least are still increasing. The key is good quality market information on prices and values generally in the area of purchase as many properties have been historically over priced and in these cases real nominal price reductions are required if a purchaser is not going to over pay. For valuation advice use a professional valuer or Chartered Surveyor (see www.mallorcacharteredsurveyors.com)

Story supplied by Mallorca Property News (www.mallorcapropertynews.com)