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As banks curb loans, Spaniards turn to home swapping

Madrid — When Jorge Lucero decided he needed a bigger home for his growing family, he knew it would be tough getting a loan from Spain’s risk-shy banks.
So instead of buying, he swapped.
Like an increasing number of Spaniards, the 36-year-old engineer short-circuited the hard-pressed financial system by agreeing to swap his apartment directly with a retired couple’s house and garden.
His new 260-square-metre (2,800-square-foot) house in Mahon, capital of the Balearic island of Menorca, has three bedrooms, three bathrooms, a living room, kitchen and office — nearly three times the size of his old home. It is valued at EUR560,000 (USD770,000).
To make up the price difference between the two properties, Lucero agreed to pay EUR160,000 on top of giving the retired couple his smaller flat in Mahon and parking space.
"For a big house that is a small mortgage, which the bank had no problem granting us. The house is practically all paid for," said Lucero, whose wife is pregnant with their second child.
"I think it is a very good option at a time when it is very difficult to buy and sell a home. I think both sides emerged as winners."
Lucero is part of a small but growing number of homeowners looking to swap their properties to get around having to ask for big mortgages at a time when banks are loath to issue loans.
With many homeowners reluctant to buy a new house before they can sell their old one for fear of being stuck paying two mortgages, especially in a housing market slump, swapping provides some peace of mind.
In a swap, you offload your house at the same time that you take possession of another.
Spain’s biggest property search website, Idealista.com, had 1,200 properties available for swapping in its listings near the end of 2011, up from just 257 in late 2009.
While the number of properties up for swapping represents a tiny minority of the total of 900,000 homes listed by the website that month, the increase nevertheless points to a dramatic increase in interest.
Since August 2009 there is one website, "Teapetecemicasa.com" or "Doyouwantmyhouse.com", which only lists properties available for swapping. It has 4,800 registered users with properties listed.
"At a time when people don’t have access to credit because banks are not loaning, swapping could be an option," said Idealista.com spokesman Francisco Inareta.
The number of mortgages approved in Spain’s once booming housing sector plunged 44.2 percent from a year earlier to 46,980 last July, the lowest since the National Statistics Institute data series began in 2003.
Mortgage approvals inched up in fall 2011 fromprevious months by 1.5 percent to 47,696. But the total was still down by 38.3 percent from a year earlier, the 16th consecutive month showing an annual decline.
Spanish banks are reluctant to give credit because their bad loan ratio has soared to a 16-year-high as Spaniards, blighted an unemployment rate of 21.52 percent — the highest rate in the industrialised world — fall into arrears.
They also have far less money to loan because many are shut out of inter-bank lending and because deposits have not grown following three years of recession and sluggish growth, said Paula Papp, a financial analyst at management consultancy AFI.
"Deposits in Spain are not growing because of the macroeconomic situation. The other lever left to banks is to restrict credit," she said.
Banks are likely to tighten lending further because they have to raise billions of euros to meet higher capital demands imposed on European banks by the European Union last month, she added.
Gabriel Aznar, the owner of the Aznar Inmobiliaria real estate agency which coordinated Lucero’s home swap, said exchanging homes was a good way to get around lenders’ unwillingness to give mortgages.
"It is not the same thing to ask for a mortgage for the value of 85 or 90 percent of a house as it is to ask for just 50 percent with the difference made up by the value of the property that I am swapping," he said.
"These are deals that are much easier for banks to finance because the value is lower and thus so is the risk."
Negotiations in home swaps can be fraught, with owners often struggling to reach an agreement on the fair value of their properties, but Aznar has closed 30 deals since he got into the business two years ago.
"I never though it would be this successful," he said.
Daniel Silva / AFP / Expatica