Well, here we are a few weeks on from the initial new reports surrounding the United States non-conforming market, and yet another country’s housing sector has been propelled into the spotlight.
The Spanish housing market’s stability has been bought sharply into focus and many are predicting that the proverbial bubble containing 10 years of inflationary pressure is about to burst, sending Spanish home owners and sector stocks scattering in its wake.
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The Spanish real estate market has changed beyond recognition over the last 30 years, as expats flood into ‘little Britain’ by the sea and purchase holiday homes. The Spaniards’ approach to their own market has also altered. Because of the high cost of buying and selling in Spain, individuals have traditionally moved house less than many of their counterparts.
However this trend has begun to change with many beginning to leave their family homes earlier in life. In addition, gender equality has also put pressure on the housing market, and single Spanish women have started to bring their own independent buying power to this arena.
To cater to this need over recent years, the construction industry has gone into overdrive, throwing up properties at a rate of knots. However, it could be said that the building industry on nuestros amigos’ home turf has become over-zealous and is now faced with a market that has a decreasing appetite for its wears.
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This situation has naturally led to a fall in property stock prices and wide spread speculation that the broader Spanish corporate sector could be over-leveraged and overvalued. What’s more, with property prices set to fall or at best stagnate, investors are looking to reduce exposure to the now ‘high risk’ sector.
Not just the corporates
It isn’t, however, just the corporates that are beginning to worry. Since the late 1990s household debt in Spain has risen dramatically from 75 per cent of disposable income to whopping 135 per cent, sparking fears of a mortgage crisis. Spain’s Economic Minster Pedro Solbes has done his best to quell the country’s worries but since a record low of 2 per cent in December 2005, Spain has felt the impact of steady interest rate rises. Indeed, Manuel Romera, manager of Instituto de la Empressa, has been reported to have told industry insiders that the ‘Spanish real estate market is in a bigger bubble than the American one. It’s just that everyone is in denial’.
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Although there are considerable variances, the situation in Spain echoes that experienced in the US. Facing an oversupply of housing, and an increase in interest rates, the industry is hoping the Spanish market is not faced with the same degree of misery as our cousins on the other side of the pond. While we can hope for the best, this situation once again highlights the issue of over-indebtedness and the recurring problem of how to facilitate house purchase without leaving borrowers in a vulnerable, and potentially catastrophic, predicament.
While the prospect of supply outstripping demand in the UK is remote, and our housing market is considered to be stable, we need to take heed. The panic in the Costas is another shot across the bows and if as an industry, we don’t ensure our house is in order, we could see real problems in the future.
But how do we do this? Although the majority of us mere industry professionals don’t have a hope of influencing interest rates or supply and demand ratios, the one area in which we can definitely make a difference is consumer information.
A real understanding
Educating borrowers and ensuring they have a real understanding of the debt they are taking on is vital in today’s ever escalating house price environment. This is the simple principal that is driving the current industry focus on ‘Treating Customers Fairly’ (TCF).
TCF is a concept which needs to be enacted on all levels of the industry from, ‘one-man band’ mortgage brokers, through to huge multinational lenders. Yes, some consumers will still want to take on significant debt levels to help them fund a property purchase, but if the repercussions of this are properly explained, we believe it will lead to a marked reduction in the number of those who find themselves with inappropriate loans.
That can only be a good thing. If someone in America had taken a stand and insisted on a programme of TCF, then perhaps the US non-conforming market would not be subject to much of the turmoil it has experienced to date.
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