British pensioners and holiday home owners are finding themselves trapped as buyers hunt for a bargain.

‘There are bargains everywhere, although the market seems to be bottoming out,’ says Kim Brown, a partner in the international payment specialists Smart Currency Exchange, talking about prices for holiday and retirement homes in Spain.

‘There are a lot of British owners who want to come home [to the UK] and they are now prepared to drop prices just to get out. But some cannot. Much depends on the value of their loan.’ In other words, prices are such that even if they did manage to sell their homes, they would not be able to repay the mortgage.

While property prices in France continue to rise, property in Spain has been an unmitigated disaster. The value of property in France rose by 8.7% between the first quarters of 2010 and 2011, while values in Spain fell by 5.3%, according to the Organisation for Economic Co-operation and Development (OECD) that promotes economic and social development worldwide. 

‘I would not say that prices in Spain have bottomed out, but a lot of people are looking for bargains,’ says Tom Whale of online property agents Rightmove. ‘Last month, we had 350,000 searches for properties in Spain.’ And there are bargains to be had. Estate agents Connells, for example, is currently advertising properties at half price after striking a deal with the banks to sell off repossessed homes.

Prices slide 30%

The latest Spanish property report from independent house price index compiler Tinsa shows that the general Spanish Real Estate Market index (IMIE) continues to slide. In May, the index recorded a 5.9% year-on-year decline in prices, compared with 4.4% in April. The general index fell to 1,794 points, a level last seen in May 2005.

In May, properties on the Mediterranean coast were at the forefront of this trend falling 8.1%, followed by the major cities at 6.7%, and the Balearic and Canary islands at 6.6%. In the same month, the cumulative fall in prices from the highs of 2007 exceeded the 20% mark for the first time at 21.5%. Over this period, the Mediterranean coast properties top the list again with a 27.8% decline in value, according to Tinsa, but some estate agents are reporting falls of up to 30%.

The situation is most painful for UK pensioners who retired to Spain, some of whom have seen the value of their property drop by as much as 50%. Their situation is made worse by the fact that sterling has fallen against the euro by around 25% since the credit crunch. This means many British pensioners are trying to survive on an income that is 25% less than when they first left the UK.

Their situation is not being helped by the volatility in the markets. According to foreign exchange dealer HiFX, the worth of a monthly pension income of £628 will have fluctuated between €756 in January and €698 in May, a difference of €58.

And things are not about to get any easier for homeowners in Spain, says Mark Bodega, director at HiFX. ‘Looking ahead, we see the potential for sterling to weaken [further],’ he says.

Buyers’ market

All of this is very bad news for those who own Spanish property and want to get out. But for buyers there are bargains and financing deals to be had. In an attempt to move properties, many of the developers have arranged finance with the banks that initially lent them the development money and agents report that there are 80% and 90% mortgages available.

Spanish real estate website Property In Spain, for example, is offering two bedroom, front line golf apartments in Polaris World, at Costa Calida on Las Terrazas de la Torre, from €96,180 with a 100% mortgage. Or for those who want more space, you can buy a repossessed six bedroom, six bathroom, luxury Vistal Mar Duquesa villa on the Costa del Sol that is within a five minute drive of the beach for €525,000 – down from €735,000 – once again with a 100% mortgage.

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