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Spain's Inflated Home Values Infect Mortgage Bonds

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``The Spanish market is not the U.S. property market,'' Bertoni says. ``We don't have the famous subprime. Generally speaking, the collateral for each loan is always quite high.''

When Borja Fernandez, a 32-year-old advertising executive, bought his two-bedroom apartment in Madrid in 2005 it was valued at 530,000 euros even though he only paid 486,000 euros. That allowed Caja Madrid to overstate the amount of home equity backing his 450,000-euro mortgage.

After two months on the market, the best offer he's received is for 540,000 euros, meaning his mortgage is still more than 80 percent of the property's value.

Gonzalez, a 36-year-old telecommunications engineer, bought a new home outside Madrid last year. He took out a bridge loan to tide him over until the sale of his apartment, reassured by an estimate that it was worth 450,000 euros.

After a year on the market, he dropped his asking price to 435,000 euros from 510,000 euros and is still getting no interest. Payments on the bridge loan are set to begin in October on top of 1,300 euros a month for his mortgage.

``I don't see a way out,'' he says. ``There's no way we can pay them both, and practically no one has been to look at the place.''

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  • 395 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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