31 October 2011
Posted in Property Info

Research has shown that 2010 was the most difficult time to buy a Golf del Sur property or an Amarilla Golf property for twenty years because although property prices dropped, the high deposit requirements combined with a low wage growth caused an near standstill in the property market. The average house price during this time stood at more than six times the average household income, whilst at the same time the average deposit levels reached 1.7 times the average level of income according to the Central Bank of Spain.

Cause of Golf del Sur Property Downturn

During the period from 1990 until the end of 2010 the average deposit for a house purchase had risen by some 300%. This was due to the long-term trend of increasing house price rises combined with the more recent squeeze on mortgage lending and low valuations on property which has meant lenders have demanded much larger deposits. This trend however has been decreasing during 2011 due to the reduced prices of Golf del Sur property and Amarilla Golf property and also a slightly more relaxed stance by mortgage lenders.

Why Savers Struggle to Buy Property

From 1990 until the end of 2010 house prices had increased an inordinate amount faster than the average income. In 1990 the average house price was about 3 times the total household income by 2010 this had risen to ten times the average household income causing a huge imbalance between earnings and expenditure. During 2011 however this imbalance has gradually reduced and it is expected that this will fall even further over the next couple of years.

As a result, buyers have to save for a longer period to purchase their property in Golf del Sur or Amarilla Golf. With rent rises being on the increase due to heightened demand this task has been made even harder still. With low interest rates causing a reduced return on savings it has been making it even more difficult for first time buyers to get a foot on the property ownership ladder.

To put it all in perspective it should be said that the average deposit needed in the first place has actually risen twice as fast as house prices and almost four times as fast as income. This is why we are seeing first time buyers getting older.

House Price Affordability

Over the past 20 years we have endured two recessions. The first of these was in the early 90s, which lasted from late 1990 until the middle of 1992, and the second one was from late 2008 until the end of 2009. The effects of each these recessions on house price affordability were very different.

The downturn during the 1990´s was much harder on existing home owners because mortgage interest rates hit an all time high of 15 per cent causing Sales and prices to fall dramatically. However this time it has been tougher on house buyers and with the base rate close to zero, homeowners have been protected. In the 90´s recession, household incomes continued to rise modestly and the average deposit stayed low for the years that followed.

Inflation was also a factor and stayed extremely low. This time however the credit crunch and subsequent recession compounded the problem and during the period of 2008 and 2009 the average household income dropped dramatically.

With property prices having risen by as much as 200 per cent in the ten years to December 2007, according to the Land Registry, house prices had run far ahead of incomes.

The average household deposit has increased since 2007. In 1990 the average loan to value was 88 percent rising to 90 per cent by the middle of the decade. The loan to value is now at its lowest level of 73 per cent which can clearly be seen by valuations issued by lenders in the current market.

Conclusion

In conclusion the prediction for the coming years on house prices is the Golf del Sur area, and wider in Tenerife, is that property prices will continue to fall slightly or stay static and that mortgage lenders will gradually ease their terms and conditions. We would also expect to see the loan to value increase on property as confidence returns to the market. Provided inflation stays low we can only expect things to improve with a return to increased sales over the next few years.

This article was produced by Homes and Away Golf del Sur property experts who have been working for over a decade with clients in the local market.