Page last updated at 15:32 GMT, Wednesday, 14 May 2008 16:32 UK

UK expats face Spanish troubles

By Brian Hanrahan
BBC News, Costa del Sol, Spain

The hundreds of thousands of Britons who have moved to Spain in search of a better life have been hit by falling property prices, sometimes with devastating consequences.

When Maxine Crooknorth bought her home on Spain's south coast two years ago it seemed like the fresh start that she and her young son needed.

Pedro Solbes, Minister of Finance, talks about the risks of buying homes in Spain

Following the death of her partner, she could not afford to get on the property ladder in Britain. And like hundreds of thousands of ex-pats she longed for a new life in the sun.

"I thought it was absolutely brilliant when I came here," she says sitting on the lush garden terrace of her flat overlooking a golf course and a view down to the sea.

But the dream has turned very sour.

Spanish slowdown

As the Spanish economy has slowed down Maxine has found it impossible to find work to cover her mortgage.

She would like to sell up and go back to Britain. But she bought at the height of the decade-long property boom which made Spain one of the powerhouse economies of Europe attracting investment and immigrants.

Maxine Crooknorth
Maxine Crooknorth has been caught by the fall in property prices

That boom has come to an abrupt halt. As a result Maxine cannot sell her home even at 20% less than she paid.

"There just aren't the people out there who are buying at the moment," she says. "Some are but they want a real bargain. Which means that I'm losing an awful lot of money."

"If I can't sell the place I have looked at renting the property out. But again that's not really going to cover the mortgage. The other option is just to have to walk away and just to let the bank have it, which means we lose absolutely everything."

Widespread problem

Maxine is not alone in her predicament. She says that her son has had to say goodbye to seven of his British classmates because their families have found it too tough to stay in Spain.

The construction boom may be coming to an end
The construction boom may be coming to an abrupt end

And Maxine's mother, Sarah Smart, is facing losing the home she thought would provide for her retirement.

"We bought our house four years ago when everything was booming and there was plenty of work," says Sarah. "We bought it as a pension really and things have dried up and we are waiting for it to be repossessed.

"Its been on the market for two years. It started out at 495,000 euros and its now down to 360,000 and still we can't sell it."

The pain in Spain

Britons on the Costa del Sol are suffering a measure of the pain which the end of the housing boom is causing across the wider Spanish economy.

Estate agents report that house prices have fallen 30% in many areas; economic growth forecasts have been revised downwards.

Construction workers in Spain
The housing boom had boosted employment
Unemployment is rising and predicted to reach at least 10% by the end of the year.

So can Spain's woes simply be blamed on the global credit crunch?

The Spanish Finance Minister Pedro Solbes says not.

"Probably the international financial turmoil accelerated the problem but the problems were already there," he says.


Mr Solbes says the underlying cause of the slowdown is that the economy became too dependent on a construction sector that got overheated.

Over-building on the south coast is rampant
Over-building on the south coast is rampant
As a result thousands of homes have been built, or are still under construction, for which there are not enough buyers.

"We were insisting that the construction of 800,000 a year had no sense that we had to we had to come back to a more normal production of houses, around 500,000 houses and this is what is happening today."

If what is happening now is a correction then how long will it take for the economy to come out the other side. Mr Solbes hopes the worst of the pain to be over by the end of 2009.

But Spain's leading housing analysts say that in the long run the answer must be diversification so the economy doesn't have to rely on house building to provide growth.

"In Spain the dream is over," says the company's co-founder Fernando Encinar.

"Spain is like Ireland and the UK. We have to face a new situation: what is the source of the economy without the real estate market?"

See Brian Hanrahan's report on the BBC News at Ten on BBC1 on Wednesday 14 May.

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