Prices are escalating out of control and although Spain is one big building site, developers are finding it more and more difficult to satisfy the appetites of investors, homebuyers and IFAs or mortgage brokers. As is the case in the UK, the downside of this property boom for local residents, first-time buyers and those seeking to move home is that they are being forced out of the market.
I predict it won't be too long before the Spanish start a revolution against the invasion of foreign homebuyers. The Spanish government has to get the balance right as it wants foreign currency while businesses want an ever-expanding tourist industry but the general public continues to demand low-cost housing. Of course one basic difference between the UK market and the market in Spain is that at least the housing development programme is more robust in Spain.
So what is the relevance of the Spanish buy-to-let market to UK mortgage brokers?
Aggressive marketers are offering commissions of up to 5% of the purchase price (agents usually add 10% fee to an asking price) as companies target IFAs. Property exhibitions are abundant in hotel rooms all over the country in the fight for that most precious of commodities – leads.
With all these tempting offers of additional income, what should brokers look out for when weighing up the pros and cons?
I guess given the option most intermediaries would choose a company with a strong record and a UK base. There are plenty of these companies advertising in national newspapers and on the internet, with some new kids on the block in hot pursuit.
The temptation is to go for the highest commission but there can be a downside in the form of low conversion ratios and dissatisfied customers. These customers can become dissatisfied once they get talking to their new neighbours in Spain and learn that perhaps they didn't get that promised best deal in town.
If you are investing time to earn money you should also invest some time in researching the companies who are trading in this market.
For example, my research in Spain revealed the fact that a significant number of companies got it wrong by flying hordes of holiday-makers over from the UK in the hope they could convert the weekend trip into a sale. Many returned to cool off about the idea, leaving IFAs with no return for their time investment.
Some firms were flying these people out to Spain without first having had a fact-find completed. This led to disappointments when it became apparent that the client could not afford to purchase their dream homes. The simple lesson is to qualify potential clients not only on affordability but also to take into consideration what income they will give up and what might replace it.
Another lesson I learned is that it is almost essential to learn Spanish to secure work. Point this out to clients.
Naturally there are two markets for British nationals: investment and purchase to take up residency. I met a number of UK residents who could not settle in Spain for reasons ranging from home-sickness, boredom and being unable to communicate outside of the English community. My advice to IFAs and brokers considering taking the plunge is to test the water first.
An essential question to ask your potential business partner is what size portfolio they have. And make sure you get hold of a hard copy of the terms and conditions of the commission payment.
Any list of things to advise your clients about would have to include – avoid taking up the offer of an all-expenses-paid inspection trip to sunny Spain. Inspection visits are a marketing tool used by agents who are often tied to a particular housing development. You will only get to see a certain type of property in a certain area.
Advice for clients thinking of buying in Spain
Remember: location, location, location
Make your own flight arrangements so you are under no pressure from any agent
House prices short-term can go down and this is arguably an inflated market at present. Think long-term
Always seek expert legal advice in the UK before signing any documents, particularly those written in Spanish
Visit your chosen area several times at different times of the year before committing to buying and if possible rent a property for a few weeks before making that final decision
Find out where visitors are going and buy a property there. For pure investment purposes consider purchasing a property with good letting potential – i.e. close to local amenities, near the sea, with either a private or communal swimming pool
Allow about 10% fees and taxes on top of the purchase price
Many homes are built for holidays and not for full-time living. These could be less spacious than you require
Allow for the installation of central heating as the temperature drops below freezing – even on the Costas
Set a budget you can afford and don't fall for the old ploy of “We've just sold the last house at that price” (the price you expected to pay, that is)
Do not buy a house from a glossy brochure. Always visit the area and check out schools and amenities