Over 580.000 Spaniards Trapped in Underwater Mortgages

28/01/2014 – El Confidencial

More than 580.000 Spaniards are trapped today in houses that cost less than their mortgage. The debtors, feeling or being obliged to sell their houses, cannot overcome the debt they owe to bank. The numbers are alarming. Not in vain, the situaton affects one in ten debtors, according to the data gathered by Kelisto.es, a financial product buyer.

They are called “underwater mortgages” in negative equity situation, or “bubble mortgages”. According to the portal, in 2015 there will be 710.000 people affected by the mortgage mentioned hereabove.

“Just like the evicted, the people with underwater mortgages are the victims of the real estate bubble and the bank´s granting mortgages for 100% above the appraised value” – said Estefanía González from Kelisto.es at the data presentation.

The research, the first in Spain in terms of such numbers, reflects the exponential rise of the affected in the last 5 years. In 2009, the bubble mortgages represented only 0.3% of all outstanding payments. Nonetheless, in 4 years their number has been multiplied by 30, reaching total of 9,5% at the end of 2013, and in 2015 the rate will shoot up to 11.3% of total. (…).

As Gonzales adds, “The greatest upsurge was noted down in 2011, when the number of the bubble mortgages reached dramatic 847% in reference to the previous year, evolving from 14.33 mortgages to almost 136.000”.

Mean Difference of 22.216 Euros per Affected Household

In coin of the realm, the total value of the bubble mortgages crept to 13.000 at the end of 2013. The difference between the money owed to bank and the potential amount a debtor would receive for sale of their home is equal to 22.216 Euros – taking as a base a mortgage of 100.000 Euros – on average. The number is predicted to grow up to the mean of 27.500 Euros per affected.

Beyond the situation stands the abrupt drop-off in housing prices observed since the real estate bubble burst six years ago and the banks´excesses commited in mortgage granting. “Mean price of a dwelling in Spain has fallen by 38,5% and went down from 245.313 Euros in 2007 to 150.787 in 2013. And that is ought to add to the mean loan-to-value rate of banks of around 114%, and some of them even signed mortgage agreements on 140% of the appraised value. (…)” – Estefania Gonzales says (…).

“We estimate a decline in housing prices up to 17%, the only thing to rise is the number of the bubble mortgages (…)”.

Catalonia & Madrid the Most Hurt by Bubble Mortgages

The underwater mortgages are scattered all around the country, but there are communities more and less affected by them. The number is the biggest in Catalonia and Madrid. In these regions, housing prices dipped down by 47,2% (Catalonia) and by 43,4% (Madrid), in regard to their record scores registered before the recession. Out of the 581.441 houses worth less than their credits in 2013, 42,6% were noted down in these two communities.

Precisely, about 24,4% (142.008) were found in Catalonia, where their number will grow up to 155.347 in 2015. The remaining 18,1% (105.481) in Madrid, where it will reach 116.208 in 2015. The two are followed by the Valencian Community with 67.181 (11,6% of total), Andalusia with 66.418 (11,4%) and Castilla and León with 26.668 (4,6%). In the opposite extreme score there are Ceuta with 387 (0,07%); Melilla with 429 (0,07%); Extremadura with 4.637 (0,8%) and La Rioja with 6.082 (1%).

In regard to the hole the bubble mortgages cause in budgets, Catalonia leads with 5.175,85 millon Euros, then the Community of Madrid (3.680,3 millons) and the Valencian Community (with 767,4 millons). Mean property value in the hole was the highest in Catalonia (36.448 Euros), the Community of Madrid (34.891 Euros) and Aragon (30.853 Euros).

Source: El Confidencial