11.26.07
Shop around for your mortgage in the Canaries
When it comes to making a major buying decision, most of us follow a pretty typical pattern. We have an idea about what it is we want to end up with and we then begin a process of researching, viewing, comparing and evaluating, which can take days to weeks or even years, depending on the importance of the decision.
It seems strange then that a great many people will actually take longer deciding which pair of shoes to buy from which shop, than they will deciding which mortgage to take from which bank, to pay for the overseas property they have spent months finding.
In addition, the majority of people applying for a mortgage for their overseas property are so pleased when they are offered a mortgage to fund the purchase of their dream place in the sun, that they willingly accept the offer they receive without questioning whether it is the best deal available or the most appropriate terms for their own personal circumstances.
Now, in some cases, the first offer you receive may well be the best available and most appropriate for you, but this feature highlights one particular couple’s journey through the mortgage maze and how much things can sometimes change, if you are prepared to put in enough time and energy.
Background
Mr & Mrs X agreed to buy two off-plan houses in the Lanzarote 2 years ago, putting down a 30% deposit on each one. They had decided that the best option for their circumstances would be to borrow as much money as they could, whilst keeping their monthly repayments as low as possible as they wanted to keep their capital for other purposes.
At the time of paying their deposits, they spoke with a bank, which we shall call bank A, which had been recommended to them locally. They met the manager, discussed their purchase and their requirements and were told verbally that the bank would offer them 70% of the valuation which would be carried out at completion in two years time.
With the market in the Canaries being as strong as it is, they had every confidence that the valuation on completion would be significantly higher than the purchase price, meaning that bank A would lend more than bank B, who were the developers bank, who would only offer 70% of the purchase price.
They felt happy with what they had been told so returned home and forgot about mortgages as their houses would not be ready for another 2 years.
2 years on
Fast forward 2 years and Mr & Mrs X are now ready to take title of their 2 houses, however, as often happens with new builds, the houses are a couple of months behind schedule. They check with bank B, the developers’ bank and are told a new valuation has been done.
They were delighted to find out that according to bank B,s new valuations, one house was valued at 26% higher than the purchase price with the second 30% higher. They were not as delighted however to find that bank B would still only lend 70% of the actual purchase price.
They returned to bank A, told them of the new valuation amount and asked if they could borrow the previously stated 70% of the valuation amount. Bank A said they could not accept bank B,s valuation and would need to conduct their own valuation.
Having been told this would only take a couple of days they were starting to get concerned over the two weeks that it actually took as the completion date was now looming closer. The figures when they arrived however, valued the houses at 32% and 38% respectively above the actual purchase prices.
So far things were looking good but also everything so far was only verbal and completion was now only about 4 weeks away. They asked for the offer in writing along with a copy of the mortgage terms. It was at this point that they began to get concerned. Despite constant chasing and constant promises, bank A began letting themselves down badly by not following through on their promises.
At this point, Mr & Mrs X felt they had no choice but to speak to a third bank to try and secure the deal they wanted. Bank C agreed to lend 70% of the valuation amounts, but again, wanted their own valuation, but knowing how high the valuations were coming in, Mr & Mrs X felt confident this time they would get what they were looking for.
A third valuation was done, this time however they came in at only 9% and 19% higher than the purchase price. To add to the disappointing valuation figures, bank C also confirmed that as two mortgages were being taken out, they would lend 70% of the valuation of one, but only 60 % for the second one.
During this process, Mr & Mrs X were completely open with the banks they were dealing with. They told each bank they were talking to others and would let the banks know what they had been offered. They were not endeavouring to play one against the other but each time merely said “Well, its up to you to offer us the best deal you can and when the offers are in we will decide what is best for us”
Bank B then decided they could in fact offer 70% of the valuation amount, with an agreement to accept the valuation from bank A, if it was higher than their own. They would however only lend over a maximum of 25 years. Meanwhile, although bank C,s valuation was low, their terms were good and included a 35 year repayment term, part of which was interest only meaning the monthly payments would be lower.
By this time, the Notary date was getting much closer and bank A had still not confirmed their offer or terms in writing, so the decision was made to keep hanging on and wait for them as their verbal offer was still the best even though bank B had by now agreed to offer 70% of bank A,s higher valuation on both properties.
Bank C were also still trying to stay in the game so offered to increase the amount they would lend on one property from 70% of their own valuation up to 80%, but would still only offer 60% on the second. This started Mr & Mrs X thinking about whether they should actually split the mortgages between 2 different banks as bank C,s offer was very good, but only on one house. So, keeping to their word, they spoke openly to the banks about their thoughts about splitting the mortgages at which point bank B put forward yet another offer, which included an interest only period, but only for both mortgages.
By this time the Notary date was being counted in days and hours and they had still not received written confirmation of the offer and terms from bank A even though this was still the one that in theory was the best deal for them due to the high valuation given.
They still held out their decision awaiting final confirmation from bank A which came in at the 11th hour. The confirmation however was for only 58% of the valuation figure, not the 70% they had been expecting for 2 years. This threw them into something of a quandary but by this time banks B and C, aware that the Notary date was fast approaching, were phoning every day to try and secure the business.
Finally, Bank B made their 5th offer, which extended the mortgage period from 25 years to 35 years, which reduced the monthly payments significantly. The only condition was that they would lend 70% on both houses, but the amount loaned was to be based upon bank B,s own valuation and not Bank A,s as previously offered. This however still gave Mr & Mrs X the amount they had been looking for all along.
So, now the dust has settled how has this affected Mr & Mrs X in real terms? Well, they wanted to borrow as much as possible whilst keeping the monthly payments as low as possible. In real terms, bank B increased the amount they initially offered to lend by some 86,000 Euros. They also eventually offered to increase the term by 10 years which reduced the monthly payments by over 300 Euros.
The table above shows just how wide ranging the various final offers were and also how wide ranging the valuations were, with the difference in real terms between the lowest and highest valuations amounting to some 93,000 Euros for the two houses.
Quite amazingly in this case, it was only really bank A,s incredibly poor customer service that led to the buyers feeling the need to shop around in the first instance. Mr & Mrs X are now very happy with the deal they have secured and have learnt a huge amount over the past few months and whilst the process was at times very frustrating they have achieved precisely what they wanted. They had no previous experience in dealing with Spanish banks and put their success in ending up with what they wanted down to having a clear idea of the deal they wanted and having the ability to simply say “No thanks!” when the offer wasn’t right for them.