Are High End Property Dreams at the Costa del Sol less profitable?

Cut price deals are typically available to cash buyers and mostly to those who snap up properties at the lower end of the market or in the middle field of the holiday home sector. For those who fancy a luxury home in Marbella’s Golden Mile or Sierra Blanca urbanisation, discounts are nowhere near as great.

With thousands of key-ready homes still sitting empty at the Costa del Sol, foreign buyers are flocking to Marbella to snap up their holiday home dream, lured by headlines of “up to 60% discounted asking prices” and fancy home loan packages that hardly ever come true for the average buyer.

The average high-end property in Marbella is sold with a discount of ca. 15%, while middle and lower end of the market properties typically exchange hands for an asking price that has been discounted by at least 30% or more, according to new research conducted by The Telegraph.

For buyers at the bottom end of the Costa del Sol property market it is quite possible to find a one bedroom resale apartment with furniture package for £100,000 or less, although typically new two-bed apartments will cost around £170,000 to £180,000. And lower end villas with 3 or 4 bedrooms across the Greater Marbella area can still be found for around £350,000. These properties will often have been discounted by up to 60%, but at the luxury end of the market discounts are not as generous.

A luxury four-bed villa that initially entered the market at £1.2 million will re-enter the market at an asking price of £1 million – and will get snapped up at that price, especially if the villa enjoys a seafront location.

Investors who buy several low-end properties can look forward to a steady high yield rental income through both holiday and long-term lettings – that is not necessarily true for investors buying at the higher end of the market where the pool of holidaymakers prepared to spend several thousand pounds for just one week is naturally small.

Spanish Credit Woes

Many estate agents list their properties with eye-catching “100% finance packages available” tag lines, but in reality most buyers will not secure a Spanish mortgage. There simply isn’t enough credit around to make it happen.

Marc Elliott, a Marbella-based mortgage broker, said that buyers should be aware that they will need at least a 30% deposit to secure their Spanish dream home and should calculate an additional 14% of the purchase price to cover all their costs such as legal fees, taxes etc.
 
For the lucky few among the foreign buyers who do manage to secure a Spanish mortgage, there is the added woe of high interest rates, for Spanish banks will charge often twice as much in interest to foreign buyers than they do for local residents. According to Mr Elliott, locals usually secure an interest rate of 1.99% for their tracker mortgage, the most frequently chosen type of home loan.

Buyers from Britain trying to secure a mortgage in Spain, however, should be prepared to pay between 4.5% and 5.0% for the same type of loan.

Scandinavian buyers tend to remortgage back home and many UK buyers are doing the same now. This turns them into cash buyers in Spain and helps them to secure better deals, especially when buying resale, as vendors are often desperate to complete quickly due to money problems and will give larger discounts to cash buyers.
 
This option won’t be advisable for those still relying on an income through work, for finding a job in Spain is almost impossible at present. But for buyers who don’t intend to live in Spain for a few years to come, the remortgaging option is a good one, provided they have built up enough equity in their home to cover all eventualities, including a home price slump in the UK, should the current housing bubble burst.