In Spain the luxury real estate market is now looking reasonably healthy. Prices have certainly dropped but they were the first to stabilise as soon as the excess stock was absorbed. Many people who had overstretched themselves got into trouble as interest rates rose to levels they hadn’t been before and others in that area were bankers, lawyers and other professionals etc… whose industries disappeared almost overnight and they were unable to pay the large mortgage repayments that came with the territory.

The now famous distressed sale market grew and virtually disappeared quite quickly as this excess was soaked up by those who had previously wanted to buy in the luxury areas but the price was slightly out of their range. As distressed sales appeared and were comparatively cheap they dragged the market down with them of course. Now they are largely gone the anchor on the market has gone too of course.

Not that you are suggesting price rises but with low interest rates in all of Europe, where many of the luxury property buyers come from, and the fact that those counties are slowly coming out of recession, many people now looking to buy in Spain at good prices. It is unlikely that in this particular sector at least there will be any further price falls. As there are limits on the number of luxury Spanish properties on sale the scarcity principle should come into play and maintain prices long and medium term.

So where are the luxury properties? Spain has many areas that are havens for the super rich, the obvious candidates are Marbella, Andratx in Mallorca, Catalunya, sprawling city centre pads in Madrid and Barcelona, the more exclusive golf resorts dotted around the country and the Canary Islands noted for their weather all year round are also popular in this field.

Perhaps the first point to mention is that in Spain there are two main financial entities that you can apply for a mortgage from. The banks in Spain work all on a similar basis, and are classes as Bancos – International brands such as BBVA and Banco Santander will be familiar with most readers. The second type of entity are the “cajas” or “cajas de ahorros” which are usually autonomous societies, formed as savings banks or building societies – often born in fruitful autonomous regions and occasionally expanding nationwide. Perfect examples would be Caja Madrid, Catalunya’s La Caixa, and Caixa Catalunya. These entities are sometimes easier to gain a mortgage from, although conditions can often be easier manipulated to the favour of the caja, rather than those rules rigorously set down by the Banco de España.

Now within the Cajas or Bancos, there are various products on offer when it comes to taking a loan out on a property. For the sake of example, let’s take a first time buyer on a starter home. Perhaps one of the main differences in any type of loan from a financial entity is the type of interest paid. It’s extremely common in Spain for an interest rate to be applied to your loan sum on an annual basis, with a revision each calendar year, around the same date as you sign your mortgage. This means that although interest rates may fluctuate, as they tend to do, then if you happen to sign your mortgage in the “highest peak” of interest, then you will pay that amount of interest for the entire year – even if interest rates go down. This has the advantage of always knowing your monthly budget of spending, but the converse is true in that if you coincide with a peak which then drops dramatically, you’re stuck with the same rate for the rest of the year. Mortgage “trackers” working on a month to moth basis, known across the world, are unknown in Spain.

Just to make things more complicated, there are then two different types of indexes your bank or building society can chose to employ regarding your policy. The Euribor is the European Interest rate, although it’s worth noting that within the Eurobor, there is a separate (always higher) Euribor Mortgage rate.

The second Interest rate that may be applied is the more stable IRPH, which takes an average of the previous 4 months Euribor and then calculates the rate this way. Any loan from a bank or building society will charge the client (that’s you) one of these two rates, plus anywhere between 1-3%, depending on the risk, size of the property, available guarantors, etc. (remember, my example here is for first time buyers).

Any loan from either entity usually has a 1% opening fee on the net price, and the same for any cancellation before the time of the loan expires – loans are typically given for 30 years, although in recent years, certain banks have given loans of up to 50 years, or those which will be inherited by next of kin/offspring. This means that swapping and changing mortgages over banks is almost impossible in Spain, given the costs involved. A 1% cancellation fee in one bank followed by a 1% opening fee in the second (even if this is waived) means that there needs to be a considerable saving on the general conditions offered by another entity for it to be worthwhile considering. It almost becomes a stock market game, playing the possibilities of the possible rise in inflation – something that few people saw coming in the latter part of 2008, for example.