Press Release * Press Release * Press Release
Date of Issue: 12th July 2010
Infinito Real warns potential buyers on the reality of high loan-to-value mortgages
Infinito Real, a Portugal based group of property investors, has seen a growing number of clients searching for mortgage deals that involve putting little or no money down in order to purchase a property. Although these types of deals have always been difficult to obtain, Stephen Anderson, Managing Director of Infinito Real, confirms that it has been possible and could potentially still be, for now. Looking at the best deals to be had now, Stephen offers his advice on potential changes in the Portuguese mortgage system and costings in the near future.
The premise behind 100 percent financed mortgages is simple, the property is valued at 20% or more above the purchase price allowing an 80% loan-to-value (LTV) mortgage to be taken out, thereby eliminating any need for the buyer to part with any money at all, other than buying costs. According to Anderson, the reason these deals have been difficult to obtain is not because of the property itself but the actual client purchasing.
He comments: “Typically these high LTV mortgages have been constrained to borrowers that have, and can prove, a high income. For example to obtain a €200,000 mortgage on a 100% finance deal, you should look to be able to prove around €3,000 NET income per month (between both applicants if jointly purchased), otherwise the banks will more than likely decline the application. Currently, if you can meet this criteria then there is still a good chance of being able to still purchase in this manner but only for the time being.”
However, Anderson does warn that banks are becoming more cautious and much more stringent with their criteria for lending due to rising interest rates. “On high LTV mortgages, the interest rate on offer is significantly higher than that of a 70%, or even 75% mortgage, and the bank has all the risk. Buyers can walk away without any financial loss and the banks are stuck with the property. We have seen this happen in huge numbers in Spain and it has cost the banking institutes heavily. We saw an increase in rates at the start of June and with predicted increases due shortly lending could become even tighter, which is no bad thing as there are still some great deals to be had.”
Anderson continues: “For the qualifying buyer there are still some fantastic mortgage products available. With rises that lie ahead, the chances of looking in a sub 3% mortgage rate will be out of reach by the end of next year. Therefore, I would advise anyone who can buy now to do so as this time next year it would be prudent to expect rates of around 5% again. Interest rates are fixed for the term of the mortgage, so if you can get a low rate now it will remain so for the lifetime of the loan, the only increases will come from the Euribor which will not be heavily increased for some time to come. Currently the best rates available for 80% LTV based on valuation (allowing for 100% of purchase price) is around 4% (3% spread + Euribor, currently 0.7%), which is almost double what it was at the start of the year. Compare that with the rate for a 70% or 75% LTV mortgage at 2.6% (1.9% spread + Euribor) and there is a large difference. Also, the options available for the lower LTV % are much more cost effective and less troublesome to acquire.”
Finally, Anderson advises that to be assured of getting the property you’re looking for, you should expect to have to find at least 20% of the purchasing price, if you have a good financial history demonstrated over the last six months bank statements.
ENDS
