Please find below a selection of news excerpts and information that relate to the Spanish mortgage and property market.

News about possibly imposing regulatory limits on the amount of salary multiples that customers are able to borrow, and also the loans to value. Clearly, lending more than 100% of the value of a property was madness, as in any downturn, the customer has not put any cash into the purchase. After a few years there may well be equity in the property, but if prices are falling, what incentive is there for the customer not to just hand the keys back and walk away? And in terms of income multiples, surely the worst thing was to be giving loans to people that verified their own income – via non-status or self-cert mortgages. Certainly there are self-employed people that have clever tax arrangements or earn predominantly in cash, but for the majority this was a way of borrowing more than they could afford in order to get on, or move up the housing ladder.
Watchdog to curb risky mortgages
Move part of radical shake-up of banking regulations
City watchdog the Financial Services Authority (FSA) is preparing a clampdown on risky mortgage lending by placing limits on the size of the loans offered to British homebuyers in a hard-hitting review of banking rules due this week. Lenders, which during the boom offered 'extreme loans' of five or six times borrowers' salaries or more than 100 per cent of a property's value, could now be forced to impose strict limits on how much debt they allow homebuyers to take on. Such a move will mark a radical break with the highly liberalised mortgage markets that evolved over the past decade and would help to make a repeat of the credit-fuelled house price bubble far less likely, though some borrowers may find it harder to buy the property they want. Adair Turner, the chairman of the FSA, will outline plans for an over-arching shake-up of banking regulations to prevent a repeat of the credit crisis in a discussion paper on Wednesday. He is expected to lay out a broad sweep of reforms to prevent banks from taking risks that could push the finance industry back to the brink of collapse. Mortgages up to four times bigger than customer income, or sold with loan-to-value ratios of 120%, became commonplace in 2006 and early 2007. Northern Rock, Halifax and Abbey sold the mortgages, many of which fell into negative equity or resulted in home repossessions. Northern Rock has admitted that the largest proportion of its repossessed homes have resulted from its Together mortgage, which allowed customers to borrow 120% of a home's value.Turner is expected to argue that many of the rules intended to maintain the health of the financial system actually had the reverse effect, and worked to destabilise the markets and encouraged risky behaviour. He will recommend the reform of regulations governing how much capital is maintained by banks in case of an economic downturn, and the more realistic pricing of financial products. He has already signalled that he favours banks keeping larger amounts of capital in boom years and less in times of recession, much like the Spanish model that allowed Abbey and Bradford & Bingley owner Banco Santander to survive without government aid. He is also expected to call for a review of accounting rules that force banks to value their assets at the current market price. Many bankers have argued that the rules added to their problems when derivatives markets froze and it proved impossible to price the exotic financial instruments they used to finance mortgage lending.One senior banker said Turner wanted to usher in an era of responsible lending without killing the mortgage market or preventing firms from devising flexible products that could accommodate customer demands. "We can't fix the system in aspic. Turner knows that for London to remain a premier financial centre, there must be room for manoeuvre," he said.


Another day, another story from Spain about how far and fast property prices are falling. The funny thing is that there are different percentages all the time, and nobody knows what to believe. Government figures aren’t to be trusted, and certainly real estate agents aren’t to be trusted, and what even the valuation firms, if they are going by their valuations for mortgages, then they could be wildly out as well. Saying that it is a good time for buyers is not very helpful when the availability of finance is so poor. Lots of people would be interested in buying property at the moment, but even if a property has fallen from 200k to 100k, a 60% or 70% mortgage means that the buyer still needs 40% or 30% of deposit plus 10% for costs. Not that many have 50k sitting around at the moment, just to be able to buy a 100k property.
Prices for both new and resale properties have already fallen by 40% thanks to a collapse in sales, according to Santiago Baena, President of the Spanish Real Estate Agents’ industry body (API).Speaking at the start of the annual API conference in Logroño, Baena also said that 50,000 estate agents have had to shut up shop as a consequence of Spain’s property market downturn.“It’s now a time for buyers, not vendors,” said Baena, in reference to the fact that, in this market, buyers hold all the cards.An official from the Ministry of Housing reminded participants that property transactions fell by 32% in 2008, whilst forecasting that “the numbers will start to recover in the coming months.
”Spanish property prices fell by 9% over 12 months to the end of February, according to the latest monthly Spanish property price index published by Tinsa, one of Spain’s leading appraisal companies. The good news, if there is any, is that the rate of decline slowed slightly, by 1.1% compared to January, when it fell by 10.1%.Tinsa warns that, thanks to volatility in the index, it is too soon to declare that house price declines have started to bottom out. “Volatility in the annual index can distort monthly results,” say Tinsa, who also points out that volatility is lower when prices are rising.February’s average fall of 9% contrasts with a rise of 18.4% clocked up by the same index in February 2004, when the Spanish property boom was in full swing.Prices fell the most in metropolitan areas, down by -11.1%, followed by Mediterranean coastal areas, down by -10.7%. Next came big cities (-8.8%), the Balearics and the Canaries (-7.6%), and the all other municipalities (-7.9%).
Rental prices fell 8% on average in 2008, whilst the supply of properties for rent surged by 300,000 homes in response to plunging property sales, according to a recent article in the Spanish daily ‘Publico’.Renting is not popular in Spain, at least when it comes to primary residencies. Just 10% of Spanish families live in rented accommodation says the Ministry of Housing, though other experts say the true figure is 9%, compared to a European average of 40%. But things may be changing in response to Spain’s property crisis, says the article in Publico. Potential buyers can’t get mortgage financing, whilst vendors can’t sell their properties, which creates a common interest in the rental market.
The problem for potential landlords is that they are all doing the same thing at the same time. That means the supply of properties for rent is shooting up, pushing down rental prices. Good news for people looking to rent a place to live, of course. As usual, the figures available from the government aren’t much use for understanding what is going on. The latest figures from the Ministry of Housing are for 2006, so totally out of date, and they aren’t broken down by region. So Publico went to other sources, such as rental agencies, and found that rental prices fell on average by between 7% and 8% last year, to 747 Euros a month for a property of 75m2.As always, the average can mask big differences between regions. For example, rents in Ourense province (Galicia) rose by 17% over 12 months to January, and by 8% in Álava, according to figures from enalquiler.com, a Spanish rental property website. At the other extreme was the city of Valencia, where rents fell by 21%, perhaps thanks to a readjustment in rents after the America’s Cup.

Off Plan in Dubai
Below is an article regarding off-plan developments and mortgages in Dubai, a market that followed Spain’s example by some years, but has hit the skids even faster in the credit crunch. Check out our site http://www.amortgageindubai.com or our pages on http://www.europamortgages.com/dubai
Is off-plan development dead in Dubai? According to Oliver Hickey, Managing Director of Middle Eastern property advisory and master planning services firm, Nexus Development, to answer this we first need to understand why so many people buy off plan in the first instance.
"In 2000 I was living and working in Spain. During this period there was a plethora of exciting new off-plan developments available. There was an abundance of sales literature available for each project and more often than not, promised the finest build qualities with exciting innovations bespoke to each development.
"Unfortunately during this period a lot of the completed developments actually proved to be sub-standard and when married against the original glossy brochures it was hard to believe that we were viewing the same development. However, the early years of the new millennium boasted attractive payment plans. Many re-mortgaged their existing UK property to release funds in the region of £30k to £60k. This was all that was needed, with no further payments until completion, when the balance of normally 70% was required to take ownership.
"During this period investors flocked to Spain and headed back to the UK with just a brochure and a signed reservation form to confirm they had purchased. By completion the property would have increased in value and the 70% you needed to borrow (courtesy of Spanish development friendly banks offering far lower rates than the UK) would be based on the value at completion. Properties during the construction period often increased by more than 30%, so you could borrow enough to pay off your UK re-mortgage thus allowing you to then rent your property in Spain when you were not using it and the rental would pay the mortgage. Easy!
"Forward to 2003 and the same was happening in Dubai, but the deal was different, no 70% back end payment and no mortgages. However the properties were much cheaper, 10% to reserve and 10% every quarter for two years with a final payment of 10%. This made perfect sense as it allowed us to purchase property that would be mortgage-free at completion. Properties were increasing at a tantalising 35% per annum and it was a win, win situation.
"So why have the international off-plan markets suddenly stalled? Firstly, International developers have been hit hard by the global financial crisis and construction finance promised to them by banks has in many cases been withdrawn. This has resulted into some developers going bankrupt and clients losing money, further reducing confidence in international off-plan sales.
"In the case of Dubai there has been a further twist. The developers have struggled primarily because the Master Developers have delayed by up to 24 months on handing over the land before construction can begin.
"The problem herein lies that this makes it impossible to construct at original prices as in many cases the price per sqft the property was originally sold for is under the bare minimum price per sqft for construction. A catch-22 situation and one that is far removed from the heady days of 35% per annum increases.
"The good news is that the government has set up RERA, a government arm that is a regulatory body whose role is to protect the investors. Strict laws have been introduced for developers and all clients’ money must now be paid into an escrow account. Unfortunately marry this with the credit crunch, which hit Dubai in October 2008 and the problem becomes amplified. Ultimately, credit crunch aside, RERA will make Dubai one of the safest international areas for clients to invest into and once confidence is restored, which in my mind may last as long as 18 months, investors will flock back to the UAE.
"Is off plan dead? The answer is 'no'. People like buying off plan, as the payment plan works for them and they can live the dream - seeing virtual tours and scrutinising glossy paraphernalia. All that is happening right now internationally is that investors are being very cautious when it comes to spending their money and are basically in a holding pattern ready to swoop again when confidence is restored.
"Off plan in Dubai is certainly not dead, but the days of the 'stupid investor' have almost certainly gone; developers will have to raise their game plan in order to survive!"

A reprinted question and answer session regarding the Spanish property market. There are some interesting points made, and we agree about the outlook for the Spanish market, although the attitude of many banks in Spain is somewhat harsher than suggested at the moment. Keep up to date with the latest market conditions by following our blogs; http://www.blog.amortgageinspain.com and http://www.blog.europamortgages.com
The Spanish property market - The truth from those who know
17 March 2009

Many commentators from estate agents to currency experts can offer their opinions on the Spanish Property market from the comfort of their plush London offices – but are they close enough to the truth? The following Qs have been A’d by real Spanish property experts. Experts who have been in the business on Iberian soil for years.

The gurus:
Chris Mercer (CM) - Founder of Mercers in 1993 and with over 25 years experience in selling freehold Spanish properties. Chris now has offices in Mazarron on the Costa Cálida (established in 1999) and the Andalusian city of Jerez (established in 2005).

Andrew Benitz (AB) - Founder of Titan Properties in 2004 and with previous experience at Deutsche Bank as Research Analyst within the Nº1 ranked Global Equity Capital Markets team. Andrew has offices in the traditional Spanish fishing village of El Rompido on the western Costa de la Luz.

What are you observing on the ground right now in your local property market?
CM – “Considering the current economic situation, we are quite surprised as our rate of enquiries is actually increasing. Not only is this very welcome but we suspect it’s bucking the trend for Spanish property in general. These enquiries are from both Spanish nationals and Brits as well as other Northern Europeans. We made nine sales in the first seven weeks of 2009 which is very encouraging. In Jerez our sales are primarily to the Spanish and in Mazarron they’re split 70-30 in favour of British buyers. Price is most probably the biggest pull-factor in this climate. On the Costa Cálida we have two bedroom terraced properties on an established golf resort for as little as 50,000 euros. Meanwhile vendors are dropping asking prices across the board in both Jerez and Mazarron – as much as 50% in some cases but 20% is a general rule of thumb.”

AB – “Interest in Spanish property hasn’t really dwindled, it’s just the type of buyer who’s changed. Investors have all-but disappeared and it’s the lifestyle buyer who has stepped in keen to find a holiday home in the sunshine at a good price. Everyone wants a deal and they are around but the property bargain hunter must consider the dynamics of the local market prior to purchase. For example a 10% discount on a property in western Costa de la Luz, where median prices have yet to fall, is clearly a better deal than a 25% discount on a property in Costa del Sol, where median prices have fallen by more than 30%. Having said that vendors and developers are now at least open to offers, a scenario that never occurred as little as a year or so ago. In this market prices are very much dictated by the financial circumstances of the vendor - whether an individual or developer - and a good agent will know which properties in its portfolio are up for negotiation.”

What part are the banks playing in the current state of the Spanish property market?
CM – “Mortgages are certainly getting harder to come by as the banks have limited funds and want limited exposure to bad debts. However, most banks will still offer up to 60% loan-to-value for non-residents which, incidentally, was the average rate of lending for foreigners up until around eight years ago when they suddenly decided to increase that percentage – perhaps to their detriment. It should also be remembered that the majority of British buyers up until around six years ago would use UK-sourced finance, usually in the form of a remortgages, which of course now could be very beneficial. Certainly mortgage rates in the UK will be more competitive than in Spain.”

AB – “Even through the boom times most Spanish banks maintained traditional lending practices for individual mortgage lending, with income earnings of the lender being the key factor in the bank’s decision to approve a mortgage application. Buy-to-let mortgages never took off in Spain. These policies still stand and a client with good income earnings – and low debt – can still get a mortgage of 70 or even 80% loan-to-value. It’s irrational exuberance in construction lending to developers that has given Spanish banks a real headache. Many became quasi developers overvaluing and consequently over-lending to whole development projects. Bank repossessions here in Spain are made up mainly from unsold new developments, but I caution clients on buying these types of ‘discounted property’. Even if they are sold at mortgage value these properties are probably still overvalued to the rest of the market.”

What’s your prognosis on the future for Spanish property?
CM – “Certainly in the short-term I do not expect much to change, at least not until the third or fourth quarter of 2009. But for those in a position to buy, 2009 is going to be an excellent year. These second home hunters will be able to pick up quality property at extremely attractive prices. We are not seeing many investors at the moment, apart from the occasional predatory purchasers who see the potential in bargains. I doubt that this will change until mid-2010 leaving those motivated by lifestyle as the main buyers.”

AB – “We truly believe that the worst has or is passing. There are plenty of clients out there with both the desire and the cash to buy Spanish property, it’s just a question of restoring their confidence to spend it. With interest rates at record lows in the UK, people with cash in the bank are now looking for alternative investment opportunities and property is at the top of the list for good quality long term investments. The main problem standing in the way of us and the British buyer right now is the exchange rate, a stronger pound would certainly help more deals to be done and hopefully that’s not too far off. The bad economic news across Europe has still not been properly priced into the euro, so I think the euro will weaken back to 1.3 levels before too long.”

How does Spain outmanouevre the competition?
CM – “Many of the emerging markets such as Eastern Europe, Dubai and so on have now been seen for what they really are – something of a fad – and the established markets of Spain, France, the USA and Portugal will once again become the main focus for the vast majority of British buyers. Interest levels in these markets hasn’t necessarily dropped over the past ten years, it’s just that with the arrival of the emerging markets the ‘pot’ of potential buyers has been spread more thinly. In times of economic recession, the stability and familiarity offered by traditional markets – Spain in particular – is highly reassuring. Little wonder therefore that Spain moved up from 14th place in January of this year to 4th place in The Move Channel’s most searched property destination and still ranks at number one in A Place in the Sun’s Top 20 favourite destinations for 2008, just as it did in 2007.”

AB – “Crisis or no crisis, the British buying public still hankers after a warm climate, familiar culture, strong modern infrastructure and clean beaches all within easy access of the UK via low-cost flights as well as overland transport options. Spain cannot be beaten. Overseas buyers are finally getting back to basics, reacquainting themselves with the markets they first fell in love with decades ago, and the reasons why, and that means Dubai and Bulgaria are ‘out’ whilst Spain and Portugal are very much ‘in’.


An article below about the unemployment problems that are affecting many parts of Spain. For many years there were white villages that had a steady influx of foreign buyers that would buy old townhouses and renovate, thus employing local craftsmen and pumping money into the local economies. This has now dried up and the Spanish workers and builders have little work as their compatriots can’t afford to build or have work done on their own properties. Can these workers go back to the traditional farm jobs that once employed them? It seems unlikely, so what will they do?
Spanish town struggles with 75% unemployment
LA LANTEJUELA, Spain (AFP) — On the outskirts of this town of white-washed houses in southwestern Spain, dozens of warehouses where bricks, marble and other building materials were once produced lie idle since a decade-long economic boom came to an abrupt end last year.
During the height of the country's credit-fueled property boom the dozens of small and medium sized building firms which sprang up in La Lantejuela employed up to 80 percent of the town's workers as local residents abandoned farm work for more lucrative jobs in construction.
But those jobs began to quickly disappear last year as the global credit crunch exacerbated a slowdown that was already underway in Spain's real estate sector.
Today nearly 75 percent of the town's economically active population is jobless, one of the highest unemployment rates in Spain, which in turn is the nation with the highest jobless rate in the 27-nation European Union.
Between the end of 2007 and the end of last year the number of unemployed in La Lantejuela jumped by 132 percent, according to mayor Juan Vega.
"This is not viable," he said, adding he felt "powerless" before the dozens of struggling local residents who file through his office every day to ask for help.
"They have gone into debt to build a house, buy a car. Today they cannot pay back the loans and the companies are threatening to cut off their water and electricity," said Vega, who belongs to the United Left coalition.
Just a decade ago most workers in the town of some 3,800 people nestled in the Andalucian countryside between Seville and Cordoba had jobs as farm labourers.
"But once the construction sector had its boom, everyone raced towards this more lucrative sector," said Vega.
The town's decline is a microcosm of the situation throughout Spain, where the bubble burst on the property market last year and battered the nation's economy.
Spain's unemployment rate hit 14.8 percent in January after the impact of the collapse in the building sector spread to other areas, and many economists predict it will continue to rise to hit 20 percent next year.
To draw attention to the plight of La Lantejuela, the mayor of the town locked himself in his office for 24 hours in February, an act which got national media coverage.
"What saves us is family solidarity. Many couples with children have already returned to live with their parents or they go eat at their parents' house several times a week," said Vega.
With no job since August, mortgage payments to make and a teenage daughter to raise, Jose Andujar Martin said he had no choice but to return to the farm work that he left four years ago for higher-paying work in construction.
"Even if I have no desire to do it, I will certainly go back to picking strawberries, as I did for 10 years," Martin, 48, said as he sat at the counter at one of the town's bars before a bottle of beer.
Faced with a sharp decline in demand, Antonio Moreno is struggling to keep his aluminium siding plant, which employed 20 people as recently as last year, alive.
"In a few months orders dropped, clients stopped paying, I had to let my employees go and I only work now with my two children," the 59-year-old said.
The government's response to Spain's first recession in 15 years has been an 11-billion-euro (14-billion-dollar) spending plan which aims to create more than 300,000 jobs, mainly through 31,000 public works projects across the country.
The town of La Lantejuela will receive 672,000 euros from this fund.
"But that is enough to provide work for three days for each of the 1,022 job seekers in the town," said Vega.

A Reuters article about a fall in tourist numbers in Portugal. Other reports suggest that destinations such as Portugal and Spain – long the traditional tourist places, will see a quicker and stronger recovery than more recently developed markets like Bulgaria and Turkey. Despite the weakness of sterling against the euro, it may be that holidaymakers seek out the comfort and familiarity of Portugal and Spain – which are still two of the closest and most accessible markets, and eschew longer haul destinations like Florida or the Far East. Check out our pages at http://www.europamortgages.com and http://www.amortgageinportugal.com

Portugal sees drop off in British tourists
LISBON (Reuters) - Nearly 13 percent fewer foreigners stayed in Portuguese hotels in January compared to a year ago due to the economic crisis, but locals travelled more inside the country, cushioning the overall slump in tourism.
The National Statistics Institute said on Tuesday the Iberian country's hotel sector received 272,500 foreign visitors and 380,500 Portuguese travellers in January, the number of locals being 3 percent higher than a year ago.
The overall number of tourists staying in Portuguese hotels fell 4 percent to 653,000.
British tourists, the leading market by far in Portugal, contributed the biggest fall in hotel occupancy, but visitors from Spain and the Netherlands were more frequent guests in Portuguese hotels than a year ago, the INE said.
The number of nights tourists spent in Portuguese hotels fell 7 percent from a year earlier, with foreigners staying 11 percent less time on average. An average tourist's stay, including domestic tourism, was 2.6 nights.
Hotels' total revenues slumped nearly 12 percent to 81.5 million euros (75.4 million pounds). The INE also said that more people were choosing cheaper motels and youth hostels.
Tourist numbers increased in the Alentejo region, which offers a variety of destinations from beaches to rural and wine tours, and in the Azores, but fell in all other regions including the southern Algarve, popular with British sunseekers.
Last year, the sector eked out 1 percent growth in arrivals to 7.1 million foreign tourists, but the second half of the year was marked by steep declines in tourist numbers. Total tourism income hit a record high of 7.5 billion euros in 2008.
Tourism is an important source of income for the Portuguese economy, with all tourism-linked revenues accounting for over 10 percent of the gross domestic product in 2007, and it is slightly cheaper than the much bigger tourism market Spain, where tourist numbers fell 3 percent last year.

A positive angle coming out of Cyprus, that the country will weather the financial crisis. I don’t know if that is because the banks in Cyprus are less exposed to all the toxic debt that seems to be in the system. I recall that the Spanish banks and Government took a long time to admit their exposure to the banking crisis, and we know that Spain has turned out to be in a pretty rotten position – maybe the worst in Europe. Just talking up the property market in Cyprus will not help if the buyers have all disappeared.
Cyprus economy and financial system will weather the crisis
With house prices falling across Europe by the end of 2008 and prospects even gloomier, the revival of the housing sector now relies on the ability of European governments to cope with the mortgage credit shortage and on the scale and duration of the economic recession, according to the Royal Institution of Chartered Surveyors (RICS) European Housing Survey.
Despite the overall pessimism with regard to static or falling house prices in Europe and the chances of core housing markets escaping market downturns now being slim, the survey’s analysis of the Cyprus market allows for some optimism.
The survey concluded that the sustained housing boom is over, with property registrations between October 2007 and October 2008 down 24% according to the Property Valuers Association and the Real Estate Agents Association, adding that sales were 40% down in coastal areas because of a decline in foreign buyers.
The housing market had experienced buoyant conditions in recent years. When Cyprus joined the EU a few years ago, a boost was given to both the economy and the housing market, which was reinforced by accession to the euro area in 2008. In the run-up to the euro, the housing market was very active and prices rose rapidly. However, by 2008 the asking prices for houses had levelled off.
Housebuilding levels in Cyprus are very high and Cyprus seems in recent years to have the highest rate per population in the EU, with the housing stock expanding by 30% in the past decade. Though a slowing in the market is evident, the extent to which the general global economic slowdown will affect the housing market is hard to predict.
The Central Bank of Cyprus is confident that the economy as a whole and the financial system will both weather the crisis. But much depends on overseas interest in homes on the island as both UK and Russia have been badly hit by the economic crisis and have seen their currencies slump against the euro.
The government offered assistance to the construction industry in late 2008 with a EUR 25 mln stimulus package, but the survey predicts that job losses may be high.
“The world financial crisis and economic downswing have hit European housing markets badly. Some countries, like Ireland and the UK, led the decline but by the last quarter of 2008 the effects had spread across Europe,” said the report's author, Michael Ball, professor of Urban and Property Economics at the Department of Real Estate and Planning at the Business School at Reading University.
“Given the broader context in which these housing market downturns are taking place, there is greater synchronisation of housing market decline in Europe than has been seen in the past and there are going to be some tough times before marked recovery occurs.”


More optimism from Cyprus – having not been in the Euro it seems that they managed to maintain their growth targets and are still forecasting growth in the coming year, albeit admitting that it will be reduced by drops in the tourism and construction sector. Find out about our latest mortgage deals for Cyprus by checking out our websites http://www.amortgageincyprus.com and http://www.europamortgages.com
Cyprus economy in enviable position

THE GOVERNMENT is maintaining its growth forecast of 2 per cent of GDP for 2009, and expects a deficit of about 1 per cent, Finance Minister Charilaos Stavrakis said yesterday.

“Cyprus has been more successful than the norm in facing up to the crisis, and is in an enviable position in the EU”, he added.

Stavrakis was reviewing the 2008 results and prospects for 2009 in a presentation given to the press. Given the Minister’s frequent statements over recent months on matters of substance, there were no surprises in the presentation.

He reiterated that the three main pillars of his economic policy during 2008, which will be maintained during the current year, were economic growth, social cohesion and macroeconomic stability.

“We hit our growth targets in 2008. Annual growth was 3.7 per cent, the third highest in the eurozone, and fourth quarter growth of around 3 per cent was the highest in the eurozone”, Stavrakis said.

Contributing factors identified by the Minister were Cyprus’ success in attracting foreign investment thanks to its continuing favourable tax environment, the new focus on the Russian market, and the government’s programme of public works. Stavrakis pointed out that while Russian investment has dropped significantly elsewhere, it has remained relatively stable in Cyprus. The public works programme will continue in 2009, and is expected to have a real impact in the second half of 2009, he said.

The government’s forecast for 2009 is 2 per cent growth, which factors in an anticipated 10 per cent or more reduction in the key tourism sector, sluggish consumption and a further slowdown in the construction sector. For 2010, the growth forecast is between 1 and 2 per cent. “If tourism is reduced by more than 10 per cent, this will push growth below the 2 per cent forecast for 2008”, Stavrakis said.

The government’s forecasts may appear optimistic when compared with those of the IMF and European Commission (EC). Although Stavrakis acknowledged that what happens in the global economy cannot be predicted and is likely to have an impact in Cyprus, he drew attention to the fact that between Spring 2008 and January 2009, the EC revised its forecasts downwards by 3.5 per cent for the eurozone, 4.4 per cent for the UK and 3.8 per cent for Germany, but by only 2.6 per cent for Cyprus. “This confirms our view that Cyprus has been more successful than the norm in facing up to the crisis”, he said.

Inflation was relatively high at 4.4 per cent in 2008, roughly 1 per cent higher than the eurozone average throughout the year. However, the December 2008 figure showed a sharp dip to 1.8 per cent, practically matching the eurozone average.

There was a fiscal surplus of about 1 per cent of GDP in 2008, and public debt was reduced from 59.4 per cent in 2007 to 49.3 per cent. These two successes contributed towards the upgrading of Cyprus’ credit rating from A to A+ by Standard & Poor’s.

The government is expecting a fiscal deficit of less than 1 per cent in 2009, “despite the big drop in public revenues in 2009, despite the increase in social payments, despite the packages for stimulating the real economy, and may well be the lowest in the eurozone”, Stavrakis said.

Taken together with its forecast of 1 to 1.5 per cent inflation and public debt of less than 50 per cent of GDP, Stavrakis said that “Cyprus is in an enviable position in the EU.”

Looking further at prospects for 2009, Stavrakis reiterated the details of the two stimulus packages announced in December 2008 and February 2009 respectively, with a total value of €470 million, and the measures already taken by the government and Central Bank to inject liquidity into the banking market.

Stavrakis included a slide in his presentation which showed that the result of the government’s continuing programme of keeping around €1 billion in 7-day deposits with the commercial banks was that the cost of those funds had come down from over 6 per cent in September 2008 to less than 2 per cent in recent weeks. “This clearly shows that there is no longer any need for the commercial banks to offer high deposit rates to their customers”, he said pointedly.

During the question and answer session, Stavrakis repeated his view that lending rates “are much higher than they should be, although some banks and the co-ops have started to reduce them on some loan products.” He added: “I have full confidence that the Governor of the Central Bank is taking the right measures so that lending rates will also come down in Cyprus.”

Invited to comment on this week’s statement by Marfin Group Executive Vice-Chairman Andreas Vgenopoulos that Marfin Laiki is prepared to refinance the state’s public debt at a favourable interest rate, Stavrakis said that although the offer is welcome, “there is a transparent offers process which would involve asking all banks for their best offer.”

A story with a very positive spin about the property and economy in Turkey, a country still witnessing population growth. Key to the future seems to be the fledgling mortgage market, and whether this will translate into further growth in the property sector. International “cash” buyers are thin on the ground at the moment, but the availability of finance may tempt investors to dip their toes back in, provided interest rates are not too high. Also, of concern, may be that UK buyers and holiday makers may stick to the more well-known traditional markets of Spain and Portugal, particularly if the Spanish market continues to offer heavily discounted offers as it seeks to clear the mountain of unsold property. The Turkey market is sure to be one to watch for developments. Keep watching our sites www.europamortgages.com and www.amortgageinturkey.com for news.
BRICKS & MORTAR: Turkey's first mortgage firm launches into crisis
With the global economy flung into recession by the collapse of the US housing market and some of the world's biggest banks bankrupted by reckless sub-prime lending, it would seem an odd time to set up a specialised mortgage lending company, not least in a country as traditionally crisis-prone as Turkey.
Yet Bahadir Teker, CEO of Turkey's first monoline mortgage lender Istanbul Mortgage, partnered by the US-based hedge fund York Capital, is unfazed. "I don't know of another market that could be worth $1 trillion in 10 years," he says, at the start-up's headquarters in Balmumcu, a mile or two down the road from the skyscrapers studding Levent, Istanbul's equivalent of The City. "In terms of long-term prospects, the only other developing real estate market that can rival Turkey is Brazil."
He tots up Turkey's advantages on his fingers. Like foreign direct investment, which ballooned from $1bn annually during the 1990s to more than $20bn in 2006, real estate values have increased exponentially. Rapidly growing trade has increased the need for office space. Recent years have seen the feverish construction of hotels and resorts to keep up with tourist numbers that have expanded by 300% in the past five years. "Turkey is at the centre of the new world," Teker says. "Immediately to the north, Russia. Immediately to the south, the Gulf. To the east, India."
But there is also a domestic motor pushing the Turkish real estate market. While Europe's population has stabilised, Turkey's continues to grow by 1.5% a year. That growth has been accentuated by an ongoing influx to cities from the countryside and a concomitant change in social habits: in the past five years, average Turkish family sizes have fallen from 4 to 3.4. According to Turkey's Association of Real Estate Investment Trusts (GYODER), domestic demand for new houses was 600,000 last year. It expects that figure to rise to 730,000 in 2015, and 810,000 in 2020.
But Turkey's biggest joker is its new-fledged mortgage market. Put off by years of double-digit interest rates, Turkey's lawmakers only got round to passing a mortgage law in 2007. Some 18 months on, mortgages total a meagre $30bn, just 4% of Turkish GDP. In the EU, which Turkey hopes to join, they are worth 50% of GDP.
Turkey's slowness off the blocks in the housing loan sector may go some way towards explaining the striking resilience its financial markets have shown so far to the global slowdown. Despite the government's apparent decision to put off a new agreement with the International Monetary Fund until after local elections mid-March, Turkey's currency remains spookily stable. Though they slipped slightly late last week, five-year Turkish bonds remain 400 basis points (bps) inside Latvia and Lithuania, 250 bps inside Estonia and 100 bps inside Croatia.
And while their much bigger colleagues in Europe and the US are sinking under the weight of bad loans, Turkey's banks appear to have learned the lessons of the huge domestic banking crisis in 2001, with capital adequacy ratios averaging 17% and minimal (though increasing) non-performing loans (NPLs). "Of course nobody in their right mind would take out a mortgage today, when the immediate future is so unclear," says Teker. "But Turkey's banking sector already has the capital to support a much larger mortgage market. There's more than $250bn turning through the system every month. The difficulty banks here have is that almost all of that is very, very short term."
This, he adds, is Istanbul Mortgage's biggest advantage. "With time and growing trust in the system, the average length of Turkish investments will get longer. Ten years ago, Turkey didn't even have six-month credits. Now it has 10-year mortgages. Right now, though, banks continue to face the threat of mismatches. We don't have that problem."
Yet for all his optimism, Teker is in no doubt that the immediate future of Turkey's real estate markets will be rocky. House prices in Istanbul have plunged roughly 30% over the past six months. According to Sabri Ates, head of the Istanbul Chamber of Estate Agents, 400,000 luxury flats in the city have yet to find a buyer.
Teker's concern is that the excessive supply in some segments of the market threatens to damage the idiosyncratic system Turkey developed to compensate for the lack of a proper mortgage market. Lacking credit, Turkish constructors have traditionally offered owners of land they want to build on a share of sales profits rather than cash up front. In many cases, down payments by the future inhabitants of the houses they are building allow them to reduce financing needs to zero. "In a country like Turkey where credit is scarce, the system is indispensable, but it puts buyers at considerable risk in a downturn," Teker says. "Why? Because constructors often use down payments from one project to finance others, leveraging themselves to dangerous levels in search of potentially huge profits." Banks have capital adequacy ratios and escrow accounts to limit this. The Turkish construction sector doesn't.
"No system is perfect, not even the mortgage system," Teker adds. "The secret here, as everywhere, is good regulation. Consumers need to be protected."
One of the drafters of Turkey's mortgage law, Teker no longer has time for anything but his new company. If all goes well, he says, loans will begin in March. It's a lonely path he's travelling: 18 months back, 30 internationals were considering setting up mortgage companies in Turkey; today, his company and another are the only two left. "For me, the lack of competition is another reason to feel optimistic," he says. "Of course, Turkey cannot grow in an unstable global environment. But once the world settles, and I'm expecting things to get clearer by the end of 2009, we can decouple. I think the future is bright."

Gloomy report from the UK, which helped drive sterling down against the euro. Is the eurozone going to recover strongly and ahead of the UK? Is the euro going to end up as the leading currency alongside the dollar? It certainly seems that the size of the euro economy should be a leader on the world stage. In terms of the property and mortgage markets, the British have been so key in driving international property growth, that the possibility of the UK coming out of the recession last is a worrying sign for International property markets. The UK is traditionally a nation of homeowners rather than renters, and property has long been seen as an alternative or supplement to traditional pension funding. But when will the Brits be able to buy again? Keep checking www.europamortgages.com and www.blog.europamortgages.com for news and updates.

UK recession 'worst of all': It will be the only major economy still in a slump next year, predicts IMF
Gordon Brown’s economic credibility suffered another blow last night following a warning that Britain’s recession will be the worst in the world.
The International Monetary Fund said the downturn in the UK would be deeper than anyone previously feared - and it would last through 2010.
The IMF also said that Britain’s economy would shrink by a catastrophic 3.8 per cent this year and 0.2 per cent in 2010 - making it the only major economy still in recession next year.

Grim outlook: New figures are expected to show that the number of unemployed rose above 2million in January
A slump of 3.8 per cent, economists say, would mean tens of thousands of businesses going to the wall and unemployment rising above 3million. The forecast suggests that Mr Brown will lead Labour into the next election against the backdrop of a continuing slump.
Just two months ago, the IMF forecast a 2.8 per cent contraction this year, followed by growth of 0.2 per cent next year.
Meanwhile, Mervyn King, the Governor of the Bank of England-yesterday warned that an ‘excessively cautious’ approach to tackling the downturn would make it worse.
He said that Britain was taking ‘unprecedented action’ to boost its spending and suggested that other countries in the G20 should follow suit.
His remarks, in a speech at the Mansion House in the City of London, appeared to be aimed at Continental Europe. Countries such as France and Germany have shown reluctance to follow the British and American lead in boosting budgets.
However, Mr King also warned that governments could not go on spending without limit for ever.
‘There needs to be a credible plan for consolidation of and debt,’ he said.
His comments could be taken as a shot across the bows of Downing Street, where the Prime Minister wants to press ahead with extra spending despite warnings from the Treasury.
The IMF forecast also appeared to shatter Mr Brown’s repeated claim that Britain is well-placed to weather the global economic turmoil.
Only Japan is now forecast to suffer a worse slump than the UK this year, with a 5 per cent contraction – sharply down from the last forecast of a 2.6 per cent.
But its economy is then predicted to flatline in 2010, with 0 per cent growth.
Treasury officials say the IMF figures give a misleading impression of how badly the UK economy is placed, since they consider the euro-zone countries as a whole, rather than individually.
But Shadow Chancellor George Osborne said: ‘Britain is set to have the longest recession of all the major economies. It is further evidence that Gordon Brown’s economic model is fundamentally broken.’
Mr Brown admitted yesterday that tougher action to curb the financial markets should have been taken when he was Chancellor.
However, he stopped well short of apologising for his role in the financial crisis.
‘I take full responsibility for all my actions, but I think we’re dealing with a bigger problem that is global in nature, as well as national,’ said Mr Brown.

French economy may shrink more than forecast -report
PARIS, March 18 (Reuters) - France's economy could shrink by 1 percent in the first quarter, putting into question the government's forecasts for 2009, a French newspaper said on Wednesday, quoting a source close to Economy Minister Christine Lagarde.
The French government expects the economy to contract by 1.5 percent this year, having sharply cut its previous official forecast of 0.2-0.5 percent growth.
Lagarde confirmed that new forecast earlier this month. But newspaper Le Figaro said worse-than-expected industrial output figures for January could change those estimates.
'Our expectations for a 1.5 percent decrease this year were based on an estimate of a 0.4 percent contraction in the first quarter,' the source was quoted as saying. 'Given the sharp fall in industrial production in January, we don't exclude that there will be a contraction of 1 percent in the first quarter.'
French industrial output fell by 3.1 percent in January compared with December.

DUBLIN, March 9 (Reuters) - It will take more than a year for house prices in Ireland to start rising steadily and the risk to that forecast is towards further delay as soaring unemployment diminishes the pool of potential buyers.
A Reuters poll last week showed a dozen economists expect house prices to fall by 10 percent this year and to drop another 5 percent on average over the whole of 2010.
Seven of those economists went into more detail, with a consensus forecast that house prices, already down by as much as 40 percent since a peak in early 2007, will bottom out next March.
Prices would then embark on a steady upward trend from June 2010, according to the median forecast of the seven Dublin-based economists who responded to that question in the poll carried out between Feb. 23 and March 3.
The bursting of its property bubble has pushed Ireland into its worst recession on record, wiped out profits at banks exposed to failed development projects and stunted growth at building suppliers such as Grafton.
Revenue from property taxes last year was more than a billion euros down from 2007 levels, and Ireland this year is expected to have the highest budget deficit in the euro zone - 9.5 percent of GDP according to official forecasts.
As Ireland's small, open economy is caught in the middle of the global credit crisis at the worst possible time in its domestic economic cycle, risks to housing market performance still appear to be on the downside.
"If all that had happened is Ireland had a property bubble that burst then we'd probably be a long way through that burst by now, we'd probably be getting close to the bottom," said Alan Ahearne, a former senior economist with the U.S. Federal Reserve who now teaches at Galway's National University of Ireland.
"Unemployment is rising and that is causing people to defer purchases and putting additional downward pressure on house prices," he said.
As the property market stabilises, Ireland will also need to end its over-reliance on the construction sector as the source of economic growth and budget revenue, analysts said.
"The downturn in housing is having a huge impact on the economy and public finances because housing had become such a major part of the economy at 14 percent of GDP by 2006," said Oliver Mangan, Chief Bond Economist at AIB Global Treasury.
By the time house completions drop to 20,000 units next year from a peak close to 90,000 in 2006, the sector's share in the economy will also contract to 5 percent or below, Mangan said.
The commercial property sector, whose rise and fall has left banks with billions of euros in loans they don't expect to recover, could take even longer to revive.
"Company after company is putting expansion plans on hold," said Paul McDowell, partner and head of Ireland at property consultants Knight Frank.
Office prices could recover in two or three years, followed by retail space, where there was even more needless building and overheating of prices, McDowell said.
TOO MANY PROPERTIES
House prices in Britain rose in January after almost a year of decline, only to fall again at a record pace last month. The slide in Ireland has been more continuous but some say a blip upwards could get the market really going again.
"The first headline that comes out that house prices in Ireland went up by 1 percent or levelled off, I think there will be a mad rush to buy property," said Alan Grant, director of mortgage broker GMC Mortgages.
Others are more cautious. Daft.ie, an Internet portal claiming to host advertisements for 9 out of every 10 properties for sale in Ireland, said the correction still had 18 to 24 months to run in major cities and longer in remote rural locations.
The stock of houses for sale on Daft.ie grew from around 35,000-40,000 in early 2007 to 70,000 in 2008, though the rise has slowed recently, Daft.ie economist Ronan Lyons said.
"Until that starts to come back down again there are just too many properties out there," Lyons told Reuters.
Experts agreed the eventual recovery will probably bypass "ghost towns" dotting the countryside -- complexes of housing built without regard for actual demand in the "Celtic Tiger" boom years, with little hope of attracting buyers in a recession.
However, in prime locations, activity could be restarting already.
"Completions will keep falling this year but we think housing starts have bottomed out in Ireland," Grafton Group's Executive Chairman Michael Chadwick told Reuters.
Ireland's property market still appears to be better off than Spain, where most economists polled by Reuters advised house hunters to wait until at least 2010 -- many said several years more -- before tentatively dipping a toe back in.
Speculators and foreign buyers have abandoned the Spanish market, leaving the holiday home market on its knees, and with an estimated 1 million unsold new units prices are expected to gain little traction for the next three years or so.


Interest Rates hit all time low
7/3/2009
The European Central Bank (ECB) followed the example set minutes earlier on Thursday afternoon by the Bank of England by announcing a half a percent interest rate cut in its now seemingly perpetual bid to kick-start the ailing Eurozone economy. The latest cut, which has seen the base rate fall to a record low of 1.5 percent, is the fifth to be announced in the space of six months – and analysts are forecasting the rate to fall below 1 percent by the summer.

Home owners can look forward to more disposable income once they have made their mortgage repayments following yet another reduction in interest rates.
This latest cut will see home owners with a mortgage of €150,000 over 30 years pay around €250 less a month than they were as little as six months ago.
The first of the interest rate cuts came into force last October, when it was at a high of 4.25 percent.
However, home owners with mortgages associated to the Euribor lending index will only feel the first effects of the latest rate cut in April, though some might have to wait until September, depending on the contracts they signed with banks.
On Thursday, Euribor rates all fell to below two percent for the first time, with the Euribor three-month index dropping to 1.757 percent, while the six-month rate, the main index for home mortgages went down to 1.869 percent.
Analysts, who widely forecast this week’s rate cut, said that ECB President Jean-Claude Trichet was likely to reduce the benchmark rate again in the next quarter, despite his public concerns that low interest rates could be laying the foundation for future crises, as any future hikes could force the housing market into further turmoil.
Despite huge reductions in repayments, Portuguese banks, have been pushing up the ‘spreads’ or profit margins on the Euribor lending index.
While spreads of between 0.6 percent and 0.9 percent were common at the turn of the year, customers with strong credit histories applying for new loans are being offered previously unheard of spreads in the region of 1.5 percent.
Due to this situation, the CDS-PP party has summoned the Government and the Bank of Portugal to explain to Parliament why interest rates are falling and banks profit margins on these loans are increasing.
Portuguese officials have expressed optimism this year that recent and pending interest rate cuts would actually result in 2009 being a prosperous year for most home owners.
“Those who keep their jobs in 2009 can look forward to greater earnings and even more buying power”, the Governor of the Bank of Portugal said, adding that the disposable income of families would rise considerably in the coming year.
Portugal entered recession after the final quarter of 2008 reported “an extremely negative performance”.
Negative growth will persist in 2009, the Bank of Portugal has said, forecasting the economy would shrink by 0.8 percent, identical to the figure during the crisis back in 2003.
The economy will only recover in 2010, with growth similar to that recorded last year.
But the coming year is forecast to report growth in the real income of consumers as high as 1.6 percent, which is due to the plummeting inflation rate, expected to fall to as low as one percent.
The European Union inflation rate sat at 1.2 percent last month, after being 3.1 percent at the beginning of 2008.rt, which Durão Barroso has praised for being “rich and balanced”, though opposition to increased supervision of banks and caps on bonuses across the union is expected to be muted given the extent of the current crisis and growing certainty in the evidence of how it was caused and by whom.


Spain Said to Plan Savings Bank Bailout to Aid Merger (Update1)
March 6 (Bloomberg) -- Spain’s government is preparing to help bail out regional savings bank Caja Castilla La Mancha to pave the way for a merger with larger Unicaja, two people familiar with the talks said.
The government and deposit insurance agency may need to spend as much as 2.7 billion euros ($3.4 billion) to make the combination of Cuenca-based CCM and Malaga-based Unicaja possible, said the people who declined to be identified because the talks are confidential. Yesterday, the newspaper El Pais reported that the amount would be as much as 1 billion euros.
As Spain’s economy pitches into its worst recession in half a century, the proportion of bad loans held by the nation’s lenders has more than tripled to its highest level since 1997. Rising defaults by developers and homeowners may spark industry consolidation, with banks vulnerable to Spain’s bursting property bubble merging with stronger lenders.
“This could be the first of perhaps many similar events at the savings banks,” said Daragh Quinn, a banking analyst at Nomura Securities in Madrid. “Obviously, CCM isn’t that big, but if bigger banks have similar problems then probably the government would have to get involved in a major way.”
A spokesman for the government of Prime Minister Jose Luis Rodriguez Zapatero declined to comment. An Economy Ministry spokeswoman also declined to comment.
Last month, Bank of Spain Governor Miguel Angel Fernandez Ordonez said it wouldn’t be “prudent” to rule out recapitalizing Spanish banks.
Deposit Insurance Fund
The deposit insurance fund, financed by contributions from banks, could “play an important role” in restructuring operations if the situation arises, Ordonez told lawmakers Feb. 25 in Madrid.
The comments came two days after Finance Minister Pedro Solbes said authorities should be “prepared for intervention,” and Francisco Gonzalez, chairman of Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, raised the prospect of state bailouts.
According to Angel Alvarez, financial director of the deposit insurance agency, there is no limit to bailouts from the agency, though “reasonable limits” would be decided by the board. The fund can go into deficit and issue debt just like any other entity, he added.
He declined to comment specifically on CCM. A spokeswoman for Unicaja declined to comment. A secretary at CCM said the bank’s spokesman wasn’t available to comment.
To date, Spain hasn’t injected capital into its banks as other European governments have, and instead has relied on measures to support liquidity.
CCM Downgraded
The government has bought almost 20 billion euros of illiquid assets such as mortgage-backed securities from banks. In coordination with its European neighbors, Spain has offered to guarantee as much as 200 billion euros of new debt for banks.
CCM had assets of 26.8 billion euros at the end of September, and Unicaja assets of 32.3 billion euros.
In February, Fitch lowered CCM’s debt rating three levels to junk. The rating company said CCM, which made 44 percent of its loans to builders and real estate companies, may need a government bailout or merger given its exposure to the “sharp ongoing adjustment” in Spain’s economy and property industry.
Standard & Poor’s this week cut the outlook on the debt ratings of Banco Santander SA and BBVA, Spain’s biggest lenders, to “negative” from “stable” as the economic slump threatens profits. S&P affirmed the banks’ AA long-term debt ratings.


ECB's Trichet Leaves Door Open for Further Rate Cuts
03/05/09 12:01 pm (EST)

(CEP News) - With European Central Bank President Jean-Claude Trichet leaving the door open for further rate cuts on Thursday, economists say the bank's key policy rate could hit another record low as early as April.Earlier in the day, the Governing Council voted to cut the main refinancing rate by 50 basis points, as was widely expected, bringing it to 1.50%. Since October, the ECB has lowered its key interest rate by a total of 275 basis points.
Following the announcement, Trichet cited ongoing weakness in global and domestic demand, though he stressed that the council hadn't decided "ex-ante" that rates are presently at their lowest level.
"If justified by facts, figures, if some of the risks that I have mentioned are materializing, I don't exclude that the main policy rate could be changed and could go down," Trichet said.
Despite Trichet's hints at further easing, ING Wholesale Banking senior economist Carsten Brzeski said the central banker's question and answer session left more questions than answers.
"Further rate cuts? Quantitative easing? According to ECB president Trichet ,everything is possible," Brzeski said.
However, Brzeski does expect the ECB to cut its rate yet again to a new record low of 1.0%. "After its reflection period, the ECB has done what it had to do," he said. "Not less, but, unfortunately, also not more. As so often in the past, the ECB is not pre-committing itself to anything."
With the significant downward revisions to the ECB's staff projections on growth prospects, IHS Global Insight chief economist Howard Archer detected a dovish tone at the press conference and also expects further cuts to come.
"Given the ECB's latest comments and staff projections, and given the ongoing stream of generally dire Eurozone data and survey evidence, we expect the ECB to cut interest rates by a further 50 basis points from 1.50% to 1.00% in April," Archer said.
"Furthermore, we now lean towards the view that Eurozone interest rates will eventually come down to 0.50% rather than the 1.00% floor that we had previously seen, despite the repeatedly stated reluctance of the ECB to bring interest rates to zero or even below 1.00%."
Although the euro largely shrugged off the rate decision, the currency did not react well to the ECB press conference.
EUR/GBP hit a session low of 0.88538 GBP during Trichet's remarks, but later recovered some ground, trading modestly below 0.89 GBP. Meanwhile, the euro hit a session low of 1.2481 USD, but also recovered and is trading above 1.25 USD.
In fixed income, the yield on the two-year German bond fell from 1.187% to a session low of 1.01% before recovering and settling at 1.14% after the press conference.
Bunds also gave up some ground during Trichet's speech, falling from 3.03% to 2.97% before recovering half of its losses and stabilizing at 3.0%.
Over the same period, the December Euribor contract rose from 98.535 to an intraday high of 98.646 before paring back all of its gains as Trichet answered the final question for the day
House prices fall, leading to a record annual rate of decline, Halifax reveals
House prices are falling at the fastest rate on record, figures from Britain's biggest mortgage lender shows.

Prices are dropping on average by £94.87 a day - a decline of 17.7 per cent in the past year, according to Halifax.
The annual drop, which is based on the group's preferred measure of comparing prices during the previous three months with the same period a year earlier, is the largest since the lender began its records in 1983.
The 2.3 per cent drop in February wiped out the 2 per cent rise in January and leaves the average home in the UK now costing £160,327, it said.
The figures come on the back of a separate report showing that the credit crisis has triggered property price falls in nearly every housing market across the world, with the UK seeing the second worst fall.
Around 81 per cent of countries recorded falls in the value of property in the last three months of 2008, compared with just 27 per cent in 2007, according to estate agents Knight Frank.
The group said no market would escape unscathed from the global financial crisis, although the impact would vary according to the housing markets and underlying economies of individual countries.
It said house prices fell by 14.7 per cent in the UK during 2008, with 5.1 per cent of the slide coming during the final quarter of the year.
Dubai was the strongest performer during 2008, with house prices rising nearly 60 per cent during the year, but much of this gain is expected to be wiped out in 2009.
And at the other end of the scale, Latvia saw the steepest price slides, with homes dropping by 16 per cent in the final three months of the year and by 33.5 per cent during 2008.
Iceland also suffered badly, with prices falling by 14 per cent during the year, with 11.3 per cent of the slide coming in the final quarter following the collapse of its banking sector.
Economists and mortgage experts said UK house prices are likely to continue falling in the coming months. The latest Halifax figures revealed that the average price of a home is now £34,626 lower than a year ago.
Martin Ellis, housing economist at Halifax, said: "Continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are likely to mean that 2009 will be another difficult year for the housing market."
Melanie Bien, of mortgage brokers Savills Private Finance, said: "There is still more pain to come for home owners and it will be a few more months yet before we hit the bottom of the market."


Spanish housing sales plummet in 2008


MADRID: Home sales in Spain dropped 33 percent last year, the government reported Thursday, more grim evidence of the bursting of the country's real estate bubble amid a dramatic economic downturn.
Sales of existing homes suffered most, plummeting 46 percent compared to 2007 to a total of 231,038 transactions, the Housing Ministry said.
In the fourth quarter, sales of new and existing homes dropped 35 percent compared to the same period of 2007, the ministry said.
Spain's construction sector had been the driving force behind more than a decade of solid economic growth, but it started to weaken rapidly at the end of 2007 as sharply higher interest rates on mortgages froze sales and banks tightened credit.
The Spanish economy is now in a technical recession and its 13.9 percent unemployment rate is the highest in the European Union and projected by the government to hit 16 percent by the end of 2009.


House prices down across all of Europe
5 March, 2009
With house prices falling across all European markets by the end of 2008 and prospects for 2009 even gloomier, the revival of European housing relies now on the ability of European governments to cope with the mortgage credit shortage and on the scale and duration of the economic recession, says the RICS European Housing Review 2009, published today.
Significant reductions in mortgage lending, due to the credit crunch, coupled with the global economic downturn, have depressed demand for residential property in Europe.
Last year house prices declined or remained static across all European markets without exception. However, the Baltic States experienced the sharpest falls (Estonia fell 23%), followed closely by the UK (minus 16%), Ireland (minus 9%) and Scandinavian countries (Norway dropped 8%).
Even those economies that did not experience a boom in house prices have not been spared from the squeeze in the property market. In Germany and Austria, a lack of credit has hit demand and further moderate falls in house prices and activity are expected in 2009. Meanwhile in Italy, sales declined and, for the first time in more than a decade, mortgage growth was negative in 2008.
Though official indices in Spain surprisingly recorded only moderate price falls through the year, the dramatic effects of the credit crunch on mortgage availability and the ending of a consumer boom are likely to lead to a more material readjustment of prices in 2009. In addition, the worsening global economic climate will lead to a further deterioration in the Spanish second homes sector.
The UK and Ireland experienced some of the worst market declines in 2008, with significant price falls in both cases. However, according to the January RICS UK Housing Market survey there is evidence that some buyers are beginning to show renewed interest, looking for bargains. Even so, it is premature to assume that this marks the bottom of the cycle for prices.

In Central and Eastern Europe, the financial turmoil hit residential markets very hard; In Hungary transactions fell by 10-15% in 2008 and house prices declined in all major Polish cities during 2008. Continued constraints on mortgage availability and the rising cost of foreign currency loans may lead to further falls.
In France, transactions of existing homes fell by 30% in 2008 and prices are expected to continue to slide in 2009 as a result of the weak economy.
The nationalisation of some of the major mortgage lenders in the Netherlands and Belgium, such as Fortis bank, has had a significant impact in those countries' housing markets, which could lead to a further weakening of prices.
The report's author, Professor Michael Ball, said: "The world financial crisis and economic downswing have hit European housing markets badly. Some countries, like Ireland and the UK, led the decline but by the last quarter of 2008 the effects had spread across Europe. Given the broader context in which these housing market downturns are taking place, there is greater synchronisation of housing market decline in Europe than has been seen in the past and there are going to be some tough times before marked recovery occurs."
Simon Rubinsohn, chief economist of RICS, commented: "The tightening in lending criteria by banks over the past year is now having a meaningful impact on a number of European housing markets. In addition, sentiment is clearly being affected by the worsening economic climate. As a result, activity levels will continue to weaken through much of 2009 and prices look set to fall further in most markets. Ensuring a ready flow of mortgage finance needs to be an important priority for European governments but the key to providing support for property markets across the region is effective measures to underpin the economy."

Interest rates continue to fall, but your mortgage may not

The Euribor interest rate, used to set the mortgages for many in Spain has fallen before 2% for the first time in five years, ending the day at 1.993%. Experts think that the index could end this month at an all time low, especially if the European Central Bank reduces interest rates tomorrow to below 2% as expected.

However despite the Euribor reduction many ‘protected’ mortgages will not be falling. Many policies have a clause which sets a lower limit when the Euribor is used to set the interest charged. The users group AUSBANC says that many who think they will be charged less at the end of this month are in for a surprise.

The Zapatero Government in Spain has sent a note to London ahead of the G-20 summit next month, with ten suggestions on reform of the financial system.
Among the ideas is that banks be obliged to reveal their risks to their local government. Spain says their ideas are designed to reduce the uncertainty at a time when the economic perspectives are deteriorating.

The ABC newspaper has applied to lay off 238 workers, some half of the total workforce, in a measures described by management as being needed for ‘economic, production and organisational’ reasons, and claim it is needed to guarantee the viability of the paper.
A statement from the workers said they are not prepared to start talks on any sacking with management, and would ‘use all the tools within reach to avoid this aggression’.

The Government says it is looking at improving the resources for INEM, the state employment service, following a survey which has shown they have only helped 2% of those who have found a job. Unemployment in Spain is fast approaching 3.5 million according to the latest figures.
Unions have meanwhile their intention to start demonstrating about the unemployment numbers in Madrid next month. A large demonstration is being planned for the 19th.

The head of General Motors in Spain, Carl-Peter Forster, has said that the viability plan for Opel will see, in addition to the requested state aid, a reduction in the workforce of some 3,500 and wage reductions for those who stay. The company wants the Spanish, Belgium and British governments to help fund them to the tune of 3.3 billion between now and 2014.

There is more evidence that hotels in Spain are lowering their prices in the face of weak demand. The number of overnight stays in January was 12% down on the same month in 2008, and according to the National Statistics Institute, INE, and prices were lower too, by 2.6%.
Meanwhile Spain has slipped a place in the list of the countries which are most attractive for tourism. According to the World Economic Forum Spain is now sixth.
Top three countries are Switzerland, Austria and Germany followed by France and Canada head of Spain.