Negative equity hits 8pc in Spain, potentially much more

Posted on October 20, 2010 by Mark

8% of Spanish mortgage borrowers are in negative equity, claims a recent report from ratings agency S&P.

That sounds bad, but keep in mind that in the UK back in 1993, 25% of home-owners who bought their homes between 19988 and 1991 were in negative equity. In comparison this rate is not off the charts (though I am ware it is not exactly comparing like with like).

It is also worth noting that S&P base this conclusion of 8% negative equity on the assumption that hose prices are down around 20% from peak, as suggested by data like Tinsa’s benchmark house-price index.

If you assume prices are, in fact, down 30 to 35pc, which might be more likely, then negative equity shoots up to between 20 and 28pc of mortgage borrowers.

As to be expected, negative equity is a biggest problem in areas where prices have fallen the most, like the Valencian Region, where there are too many new homes, not to mention holiday-homes. 12.4% of borrowers in the Valencian Community are sitting on negative equity, followed by Navarra (12.3%), Castilla La Mancah (11.4%), and Murcia (10.6%). At the other end of the scale it is hardly an issue in Galicia, where just 1.4% of borrowers are in negative equity.

Negative equity is also much higher amongst recent borrowers who bought in 2007 and 2008. This group also tended to buy in areas where prices have fallen the most, compounding their woes.

The problem is expected to get worse before it gets better. “We expect house prices to continue falling (in Spain), even when they have stopped falling in other countries,” say S&P in their report.