Mortgages in Spain: What You Need to Know About Bank Property Valuations
Applying for a mortgage in Spain involves property valuation. Many buyers are unclear about the difference between the market value of the chosen house or apartment and the amount the bank values it. Often these values differ significantly, and the question arises: how much is the purchased property really worth?
The market value of real estate is determined by supply and demand. If there is a buyer willing to pay a certain amount, then this will be the market value. The bank valuation, in turn, is determined to calculate the loan. It indicates the possible amount that can be received for the property when it is sold at auction.
It often happens that a buyer plans to buy a property for 500 thousand euros, but the bank values it at only 400 thousand. This causes dissatisfaction in the buyer, who does not understand who deceived him. But it should be remembered that the bank’s assessment does not reflect the real market value. Usually it is significantly lower, and this should be taken into account when planning an application for a mortgage loan.
Why do banks value real estate below its real market value? Because the bank has its own interests, which may not coincide with the interests of the borrower. The valuation is carried out before signing the mortgage agreement. In the past, the Spanish market was flooded with cheap loans, so banks valued the property as high as possible to get maximum income. However, this led to a crisis. Now banks have tightened their requirements and do not want to take risks. They value the property lower to reduce their credit risks and force the buyer to pay a large part of the cost from their own funds. In this way, the bank risks less in the event of the borrower’s bankruptcy, since it can sell the collateral property.
The buyer should not be surprised if the estimated value of his home is 25-35% lower than the amount he will pay the seller. The bank’s valuation reflects the bank’s credit policy, which is currently very conservative in Spain. The main thing for the buyer is to make sure that he will not lose money on the future sale of his property. Only in this case will the purchase of real estate be profitable.
