Higher mortgage interest rates in the Eurozone, a fall in the value of the pound and the effects of the recession mean that many Britons who have bought holiday homes in Spain are now struggling to meet their monthly repayments.
Our firm has seen a rise in the number of people seeking help to renegotiate their Spanish mortgages or advice on alternative options.
The increase in mortgage interest rates from 2.5 to 5 per cent in Spain and the weaker pound have both increased the cost of mortgage repayments. However, buyers who allow their homes to be repossessed could face consequences in the future.
Under Spanish law a borrower is liable with his own personal assets for any mortgage signed in Spain. Where a home is repossessed by the bank and sold and the value is not enough to cover the outstanding mortgage, interest and costs, then the bank will be entitled to claim against the borrower for the shortfall. In the case of UK residents this could mean the lender issuing proceedings in the UK.
The borrower could also be put on a register of bad debtors and be blacklisted in Spain for six years. This may not worry UK residents who decide to leave Spain. However Spanish lenders are fully aware of the importance of credit ratings in the UK and are now exploring ways to pass on information to UK databases.
Some are looking into signing reciprocity agreements under which they can share information with companies in different countries. Ultimately UK residents who default in Spain may find their credit history affected back in the UK. A decision by the European Court of Justice on 23 November 2006, which clarified the circumstances in which financial institutions may exchange this type of information, has brought this scenario a step closer to reality.
Options for homeowners in financial difficulties include renting out the property, extending the mortgage term or remortgaging, or ‘dación en pago’ in which the property is transferred to the bank in lieu of the outstanding mortgage.
Whatever the situation, handing in the keys and simply walking away is one of the worst things you can do. It’s worth exploring the options as a rash decision could come back to haunt you at a later date.