It might not be yesterday’s news for many countries, but the real estate crash of 2008 has caused devastating affects on many countries and majority of you may be interested to know the role of the banking institutions before and after the crash.

1.    The primary role of banks was to allow individuals to borrow unlimited amounts of money for a mortgage which in most cases was more than 100% of the value of the property and if necessary an appraisal was done with inflated values.
The reason for oversupply of liquidity was twofold, firstly the public were left feeling happy with their access to cash and secondly with this amount of money floating around the market it pushed up the prices of house dramatically.

2.    Provide unlimited funding to real estate developers, whereby the only criteria for lending was, the better promotion the bigger amount that was lent, with virtually no financial structures put in place

Again, this causes property prices to surge because promoters had more liquidity so they did not have to struggle for a sale.

The biggest winners of all this money in the property market was the owners of land which was either passed down through the families and then sold on or via property speculators who were buying property to sell on immediately.

3.    Banks went from the business of lending money to wanting a piece of the real estate sector because it was boom time and the banks did not want to miss out on their share of profits.

The banks formed a partnership with the real estate promoters who were now assured access to money for the purchasing of land and the promoting of the projects throughout Spain.

The profits were shared between the banks and real estate promoters, some of which were small time companies and without the help of the banks would never have imagined the possibility to construct a complete urbanization.

As 2007 started to come to an end, signs began to show that credit was starting to dry up and that the world stood on the edge of an economic downturn. This was the case in 2008, when the property bubble burst and reality hit home for everyone, including the banks.

Since those dark days, the banks role has changed somewhat and now operate under the following measures:

1.    Strict lending policy whereby the granting of a mortgage to an individual is non-existent and if the answer is yes, then the terms and conditions are extremely unforgiving.

2.    Where once banks and promoters were one, now the banks are no longer lending money to real estate developers, but instead they have removed all credit facilities and put a strangle on new property developments.

3.    The partnerships that the banks held have ended, thus making them the major property owner in a sector that they have helped to devastate.

The bottom line that we are all facing is that if you want to buy a property in Spain with a mortgage, then you need to seek professional help, because without the right advice the banks will not grant a mortgage to anyone.

This is also true when it comes to purchasing a property in Barcelona because prices are far less than they used to be a few years ago and there are bargains to be had, if you know where to look.

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