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Thousands of British homeowners in southern Spain face a negative equity crisis, experts warn, as ten-year interest-only mortgages taken out before the country’s property crash come to an end.
British buyers were given easy loans at the peak of the Spanish property boom in 2007 — after a decade of prolific construction during which prices rose by 200 per cent. However, construction ground to a halt and values collapsed the next year, leaving many sitting on an equity time bomb.
People were sold the dream, which soon turned into a nightmare
With thousands of ten-year mortgages (often interest-only) expiring at once, legal experts warn that buyers in regions such as the Costa del Sol, Costa Brava and Costa Calida could have their repayments soar by 1,000 per cent a month. Their properties, meanwhile, may have devalued by up to 70 percent.
As The Times reported yesterday, British buyers are returning to the European property market after a slowdown stemming from the EU referendum. Lisbon, Paris, Tuscany and the Côte d’Azur are booming, as well as parts of Majorca.
However, swathes of the Costas have failed to recover from the crash because of an oversupply of homes and poor-quality construction.
“A lot of these people have bought in developments that were never fully sold or, in some cases, never completed when the crash happened,” says Jessica Cullen, an expert working for the legal firm EU Property Solutions, which specialises in Britons facing negative equity.
“These developments very quickly slid into a state of disrepair and no one wanted to move into them. This was very common in the Costa Brava and Costa del Sol. Credit was readily available at the time, so it encouraged a lot of people to make decisions that they might not make again — it seemed like a good investment in 2007, particularly given the remarkable rise in Spanish property prices. People were sold the dream, which soon turned into a nightmare.”
Jill Lonsdale and her husband, David, both aged 69, bought their home in Murcia on the Costa Calida in 2006 for £400,000, with a £250,000 interest- only mortgage with Halifax Espana. When the deal expired their monthly repayment went from €250 to €2,500 a month. They then found themselves unable to sell it, despite dropping the price to €120,000.
Eventually, having enlisted EU Property Solutions for legal help, the Lonsdales persuaded their bank to cancel the mortgage and take the keys to the property. “We tried very hard to sell it and got absolutely nowhere — it was very stressful,” Mrs Lonsdale says. “We had to come home because my husband has a heart condition.”