Despite the fall in Spanish property prices, Spaniards are still paying more than they used to for housing.

As you can see from the graph above, the housing affordability ratio, as calculated by the Bank of Spain (average property prices / average gross annual household income), has fallen from 7.7 years at the peak of the property boom to 6.2 years of income today.

Spanish families might welcome more affordable housing, but as the graph above also makes clear, housing is still much more expensive than it was before the boom, when it cost just 4 years gross annual income or less.

There are several reasons why the affordability ratio hasn’t improved more with falling property prices, including higher mortgage borrowing costs and lower household income.

None of this really applies to the cost of holiday-homes on the coast, where prices have fallen substantially more than the national average, and where foreigners with higher incomes than the Spanish national average tend to buy.

If your asking price is right you will sell your property in a day argues José Luis Jimeno (pictured above), Managing Director of Noteges, a property company.

You have nothing but your own unrealistic expectations to blame if your property doesn’t sell fast. That’s the conclusion Jimeno has reached based on his experience of this market. “The homes that have sold are 40pc on average below the price of other properties for sale in the area,” he recently explained in an article in the Spanish press.

So who is selling? Vendors who bite the bullet and drop their prices to be the most competitively priced on the market. They tend to be people who really need to sell, like divorcees, people who have lost their jobs, or people who have to relocate. It’s vendors like this that buyers should be targeting.

“You can have a home for sale for months or even years, but until you drop your price to where the demand is, you can forget about selling,” says Jimeno, whose organisation sold more than 6,000 homes around Spain last year.

Asking prices for resale properties fell 9.4pc in January compared to the same time last year, according to the house price index published by idealista.com, a leading property portal.

On a monthly basis, asking prices of homes in the idealista.com database fell 1.9pc to an average price of 2,045 €/m2.

It represents the biggest fall in asking prices since idealista.com started publishing the index before the crisis began in 2008.

On a monthly basis, prices fell the most in Castille La Mancha (-2.3pc), followed by The Balearics, Asturias and Andalucia (-2.1pc). Prices fell the least in Aragon (-0.1pc).

The Basque Country has the most expensive asking prices in Spain (3,312 €/m2), whilst Extremadura has the cheapest (1,305 €/m2), followed by Murcia (1,306 €/m2).

For more information on asking prices changes by region, province and city see the idealista.com asking price index (in Spanish).

It’s not often a Government actively targets lower house prices, but that’s what this Government believes it has to do to clean up the banking system and get credit flowing again.

The main measure being introduced is higher provisions on the property portfolios held by banks.

“We believe that with this reform we will give credibility to the financial system and clear up the doubts surrounding the banks’ real estate assets,” de Guindos told the Spanish press.

By Government estimates, the Spanish banking system is troubled by €175 billion of loans to developers that are in default.

By forcing banks to recognise bigger provisions, the Government hopes house prices will fall, the property market will pick up, and banks will start lending again.

But some experts have warned that the new measures will fail.

By Luke Trevail of TorFX

The longer term picture is unclear, but throughout January the Merkel & Sarkozy ‘coalition’ cemented itself as the leading factor in deciding, influencing and potentially commanding what direction the euro-zone takes from here.

This outcome is largely yet to be determined but from a currency point-of-view the markets do not like this uncertainty, with only a glut of weak UK fundamentals keeping rates against the pound below €1.20 (0.833) this last couple of weeks.

January saw UK economic growth shrink by more than expected throughout quarter four of 2011, posting a -0,2% contraction. Two quarters of negative growth to an economy is the definition of a recession and it’s this rather worrying banana skin that’s keeping the pound at bay for now.

It’s fair to assume however that for anyone who is looking to buy the euro over the coming month will potentially get a better rate than where we are now as the euro will likely continue to suffer from ongoing difficulties that may drive the market higher.

This should sound as a warning for anyone who is sat with euros and wanting to get these moved back to the UK as the threat of a move up towards €1.25 could be on the cards.

Using a specialist FX broker such as TORfx will allow you benefit from trading options that are not available through the bank such a limit and stop orders which are designed to achieve you a better rate than what’s currently available while protecting you against any adverse moves along with forward buying options which allows you to secure a rate based on where the market is now and pay your money to us for ongoing exchange at a date in the future.

As we bid farewell to January, the next few weeks will prove pivotal in deciding how the fall out of the Euro Debt Crisis will affect the currency markets. Volatility will be key, so the advice to keep abreast with the current market, rather than lovingly remember rates of years gone by is, as ever important in determining what worth your money can command.

Do you need to buy or sell foreign currency? Click here for a free quote from specialist currency brokers TorFX.

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A summary of the Latest Euribor and Spanish mortgage news

Euribor (12 months), the interest rate typically used to calculate mortgage repayments in Spain, fell to 1.837pc in January, a percentage change of -8.6pc on a monthly basis, but +18.5pc on an annualised basis.

As a result, repayments for the average €150,000-mortgage resetting now will go up by around €240/year.

Analysts expect Euribor to remain stead or fall slightly for the rest of the year, in line with the ECB’s 1pc interest rates.

New mortgage lending slumps again

Low interest rates sound like good news for borrowers, but only if they can get a mortgage. Unfortunately, it’s never been harder to get a mortgage in Spain, as the chart below shows. The number of new mortgages signed collapsed an annualised 35.8pc to 28,113 in November, just a fraction above September’s contemporary low.

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The G-14 association of Spain’s leading developers says it will ask the Government to introduce mortgage interest tax relief on holiday-homes to stimulate demand and deal with Spain’s problematic over-supply of empty new holiday homes on the coast.

The Government has just reintroduced mortgage interest tax relief on main homes, despite that fact that it favours owner-occupiers at the expense of those who rent, and makes it harder for Spain to reach its stated goal of increasing the rental market. Developers want a similar tax break for holiday-homes.

Some industry voices like Antonio Carroza of Alquiler Seguro – a rental company – have wasted no time in describing the request as “irresponsible”. He believes it is wrong to use public money to subsidise “large developers so they can sell second homes that should never have been built,” he said, quoted in the Spanish press.

In any event the tax relief would only apply to Spanish residents, not foreigners buying holiday-homes in Spain.

The G-14 has also called on the Government to reduce the ITP sales tax on resale properties.

Whilst the central government in Madrid is making noises about reducing the sales tax (ITP) on resale properties to bring it more in line with VAT rates on new property (4pc), the regional government in Andalucia has introduced a sneaky increase in the ITP rate making it more expensive to buy a resale property in Andalucia.

As a result of this change, someone buying a resale property in Andalucia for €1 million will now pay €89,000 in ITP, and increase of €13,000, or 17pc more than last year.

This makes the tax difference between new builds, which incur VAT, and resales wider than ever. VAT on a new home costing €1 million would be just €40,000, compared to €89,000 of ITP for a resale property. So Andalucia’s tax policy discriminates heavily against private vendors in favour of banks and developers selling new homes.

The sneaky way in which the tax was introduced, without warning on Saturday 31 December, speaks volumes about how popular this tax increase is going to be. It is likely to increase the popularity of undeclared cash payments, something that had been on the decline for years.

The following table sums up the changes in Andalucia’s ITP tax.