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The monthly magazine providing news analysis and professional research for the discerning private investor/landlord

Interest Only Mortgages in Spain are ‘a Ticking Time Bomb’

The Spanish property market peaked 10 years ago in 2007. However, between 1996 and 2007, Spain’s national average house price soared by 197%. During this time thousands of foreign investors were lured to Spain by interest-free mortgages and rental guarantees.

Many were attracted by very low (at the time) mortgage rates and attractive deals for 10-year fixed rates, while plenty of buyers from the UK and Ireland took equity out of their home to use as deposit for a Spanish property.

However, according to James Bell, director at EU Property Solutions, there is ‘a ticking time bomb’ looming over the Spanish property market as many homeowners that bought at the top of the market will see their 10-year fixed rate deals expire this year. While the interest rate they will now pay on their loan is actually lower than their fixed rate deal, in most cases, the problem is that nearly all of these loans now have to revert from interest only to repayment. In some cases this will mean a much higher monthly mortgage payment.

Unfortunately for those that bought in Spain back in 2007, it is likely that the value of their investment is still 30-35% lower today so selling (assuming you can find a buyer) would mean losing your deposit and having to pay more money to clear the rest of your mortgage as most buyers put down a deposit of less than 35% before prices crashed.

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