Dealing with Mortgage Problems in Tenerife

In the current economic climate some both residents and non residents of Tenerife may face problems in repaying their mortgage.  It can be a scary position.  Although resident in Tenerife, you may not be confident enough speaking Spanish, and this can make you feel isolated.  Finding out what options are available to you can be difficult if there is a language barrier.  There may be many people willing to help you, but in most cases this will involve a fee.  When times are hard, the last thing you want is an extra bill from an ‘advisor’.  Therefore, it is a good idea to know what your options are before you take the drastic step of handing your keys back to the bank.

Do you qualify for assistance?

New Governments schemes designed to help people who are haveing problems with repaying their mortgage are avilable from March 2009.  You can save up to 500 Euros a month from your mortgage repayments, by deferring them.  Find out if you qualify for this assistance and all the terms as well as the documents you will need to apply by clicking here.

Sell your Tenerife Property

A first step that most people will take is to put their property on the market.  This is not as hopeless as you might think.  Even if the volume of property sales in Tenerife to be down to near half of what it was in its heyday, that still means a lot of properties are getting bought and sold.  Properties can spend many months languishing in some estate agent’s dusty files, so make sure you choose one that is till active and advertising to attract buyers.  Even then, you will need to make sure that you offer property for sale in Tenerife at a competitive price.

Buyers are very price conscious at the moment, and lowering the price enough to attract the bargain hunters who prowl the market may still not be a solution.  If the selling price will not cover your outstanding borrowing, ie your Tenerife property is in negative equity, then you may have to negotiate a further loan to pay off the arrears.  Nobody wants to be in that position.

Renegotiate your Tenerife Mortgage

The worst thing you can do, if you have difficulty in repaying your mortgage is to bury your head in the sand.  You are not alone, and there are plenty of other people of all nationalities who are finding it hard to make ends meet.  Even if you have put your house on the market, if you are struggling to make the payments it is best to go back to see your bank right away.  Check out our tips for negotiating a problem mortgage in Tenerife before you do.

Some banks in Tenerife will try to help, but they won’t make it too easy.  They would prefer that making any changes to your mortgage arrangements is a last resort, and so they may put up a hard face in any negotiation.  Indeed, their first reaction may be to tell you that they cannot make any changes to your mortgage.  Nevertheless, the onus is on you to persist.  Banks in Spain have been used to minimal tolerance where loans are concerned, but rising foreclosure rates are starting to make them rethink the strategy and offer alternative mortgage solutions.  

Throughout Spain, and in Tenerife, lenders are starting to offer alternatives to repossession for those who are struggling with repayments and some of these solutions are becoming quite creative.  For example, Caixa Catalunya is offering a scheme where mortgages can be converted to rental contracts with an option to buy back the property.  Rents are slightly below market rates, and 40% to 50% below mortgage repayments, according to the bank.  This option avoids forcing people out of their homes, whilst giving the bank some income from the loan. It also means banks avoid the costly process of foreclosure, after which they are left with an empty property to have to sell.

Other lenders are also starting to offer alternatives to clients who are having trouble paying their mortgage.  Common mortgage solutions include extending loan terms to reduce the monthly repayments or adapting interest rates to clients’ ability to pay.  Some banks may even consider mortgage holidays that defer payments to a later date. 

The most important thing is to take action as quickly as possible, before you default on any payments.  Waiting until you default on a repayment will put you in a weaker position immediately.  If you miss a payment, or you do not pay a full instalment, then a bank may consider that you are less likely to hold your end of any renegotiated arrangement.  In other words, your credibility goes down.  If you get in arrears too much, then banks will start foreclosure procedures to repossess your home.

So insist on seeing your bank manager as soon as you become aware that your situation has changed.   Once there, bring a list of your monthly expenses and current income.  Have an idea of what you need to reduce your monthly repayment to.  If your property is on the market, then bring a copy of your agreement with the agent, which will show the price it is being offered at.  It is not unlikely that you will reach an acceptable compromise, but if you cannot then your next option is to look for an alternative lender.

Get a new Mortgage, or a Remortgage in Tenerife

It may be possible to find an alternative lender who can lower your repayments.  If you negotiate a better interest rate when you remortgage Tenerife property then you will have to pay less monthly.  Another solution may be to find a lender who offers an initial interest only repayment period, which might give you a chance to get back on your feet.

Thanks to changes in the law, it has become much cheaper to remortgage a property with a new lender.  It is quite common for new mortgage lenders to cover costs like existing redemption penalties as well as Notary and Registry costs.  It is possible to move lenders without having to pay any costs or fees at all, but this will involve shopping around.

Finding out about different mortgage solutions in Tenerife that might be available, and comparing their terms can be difficult, if there is a language barrier.  The first place that people often turn to for help is the estate agent in Tenerife that sold them the property.  Although estate agents in Tenerife may have been efficient in arranging a mortgage for you when you bought your property, they are often ill equipped to help you to find a different lender.  In some cases, the agent may no longer exist, in others they may simply not be able to assist.  Most Tenerife estate agents will have contacts with just one or two lenders: probably the same lender who they arranged your mortgage with in the first place.  They are unlikely to have access to the wide range of mortgage lenders in Spain. 

It is not uncommon for expats to use a Tenerife mortgage broker to help them find the right loan for their circumstances.  You can find additional information about using mortgage brokers if you buy the Tenerife Lifeline book, as well as information on mortgages and lenders in general.