All quiet on the Menorcan front – except for houses - Mortgages - Money - The Independent

All quiet on the Menorcan front – except for houses

The Balearic island attracts older buyers while avoiding the problems seen elsewhere in Spain

Mallorca has the mass tourism and Ibiza the ultra-cool clubbing scene, but Menorca prefers a gentler existence.

Only 270 miles square and with a population below 100,000, Menorca, or Minorca, as its also written, may seem like a sleepy backwater in the otherwise buzzy Balearics. But this green and spacious island may have a lot to offer British buyers looking for a second home.

In its unique topography with 280 bays and inlets it's possible to lose oneself with a gentle boat ride out of the capital Port Mahon, which has the second biggest natural harbour in the world. Beaches abound as does a superb road, cycle and walking network and it's all less than two hours' flight time from Britain.

Menorca is the furthest Balearic island from the coast of Spain, and its property market also seems well removed from the turmoil that is still gripping the mainland.

"On the Costas you are looking at property prices having come off 40 or 45 per cent at least but in Menorca you are looking at reductions, since the credit crunch of 10 or 15 per cent," said Nick Byrne, a director of Portsmouth-based Waterside Property.

When you factor in the decline in the value of the pound against the euro since the credit crunch, this means that British sellers on the island are still getting close to 2007 prices. "The market in Menorca has just had two of the worst years on record in terms of volumes, but there are signs that things are on their way back," said Phil Jackson, a director of UK and overseas estate agents Maguire Jackson, in Birmingham.

The clue to the Menorcan property market not going the same way as the rest of Spain can be seen in the island's lush greenery. A combination of strict planning laws restricting developments on so called "rustic" land (their equivalent of green belt), none of the mass Spanish developers getting a toehold and the island's sleepy reputation has prevented an oversupply of property.

"There hasn't been the development free-for-all you have seen on mainland Spain. None of those ¤90,000 badly built villas on big developments with poor facilities and uncertain planning permission you've seen in Alicante or Malaga. Menorca is altogether quite a bit classier," Mr Byrne added.

And to emphasise the point of more careful development, all new-build property on the island has to have solar technology, far in advance of any UK legislation, and 10-year building guarantees are becoming the norm.

Less development also means fewer bank repossession properties. Across Spain more than a million homes are estimated to be in the hands of the banks – mostly through developers going bust. Many of these are being sold at heavy discounts, depressing prices further for those owners looking to sell through the normal route.

"In Menorca there are relatively few repossession properties to glut the market," said Colin Guanaria, a director of Balearic property sales company Bonnin Sanso. "What's more, properties tend to be very individual. A lot of owners have chosen in the past to buy a plot of land and then have a home built, which lends character and less of a uniform feel to property on the island."

A quick run-through of the properties on Bonnin Sanso's books highlights this point. Of course, there are a few of the classic Spanish holiday apartments at Son Parc – near the island's only golf course – but they were built in the 1980s by Taylor Woodrow. Two-bed apartments with balconies and use of a communal pool start at ¤150,000 but most are priced at the ¤180,000 mark. Further up the property food chain there are larger luxurious apartments available at Covas Novas from ¤199,000, while a new small development of five modern villas with bedrooms in Trebaluger starts at ¤350,000.

Buyers with much deeper pockets are well catered for. A four-bed apartment in Punta Reloj offering 210sq m of space with staggering views over Mahon harbour is available at ¤850,000. On the north side of Mahon with the most commanding views is where much of the islands most exclusive property is to be found, with villas and their own mooring ranging from ¤2m to ¤6.5m for the Villa Amanecer set in 969sq m of land and a massive infinity pool.

At those sort of prices, financing is not an issue – you either have several million euros or you don't – but lower down the scale, many buyers still find it necessary to borrow. "Five years ago, 30 per cent of buyers were cash. Now it's closer to 80 per cent. This represents the tighter lending that has come into play since the credit crunch," Mr Guanaria said.

A funny thing is happening in the Spanish mortgage market. People buying bank repossession property can sometimes get 90 per cent or higher loan to value mortgages whereas for everyone else it seems 60 per cent is the norm. "The Bank of Spain decreed that 60 per cent should be the maximum LTV for foreign buyers in Spain," Mr Guanaria said.

No wonder those looking to borrow often do so against their own property in the UK. "This has the key advantage of repayments being in pounds which means that buyers can be sure about what they are going to be paying," Mr Byrne said.

But Spanish banks such as Santander and Caixa are still willing to lend. "Provided you can show you can keep up with the repayments, the money is there," said Sean Adams, an associate director of Savils Private Finance. "The Balearics are interesting as defaults are lower as buyers tend to be of a higher quality than the mainland, so it is possible to get a 70 per cent LTV mortgage. But those who are cash poor but asset rich will struggle to find finance."

Buying a home in Menorca is no buy-to-let income-generating panacea. Property in some parts of the island cannot legally be let as a holiday home. Flights, although frequent in the summer, die off come the winter, reducing tourism. "Let's be clear: if you think you will make money by borrowing to buy and letting it out, forget it. Generally, speaking, if you cover 30 to 40 per cent of the mortgage cost you are doing well. Most people buy to enjoy and then do some letting at the side," Mr Guanaria added.

Mr Jackson agrees, saying older buyers tend to predominate in Menorca. "They have kids and grandkids and want them to use it at holiday time, whereas in other parts of Spain buyers tended to be at an earlier stage of life.

"If you're going for rental returns, then look at the Costas. If you want something a little more tasteful and largely for your own use, then Menorca is a good option," he said.

One area that doesn't seem too expensive is the management of property. Unlike in some popular second home locations where developers charge a small fortune for upkeep, in Menorca owners join a local residents' committee which takes care of the maintenance and splits costs according to property square meterage.

But buyers should be aware that initial purchases come with an 8 per cent upfront tax, and estate agents can charge fees of up to 5 per cent. These fees are standard throughout most of Spain, but Menorca does seem to offer something a little out of the ordinary. "It's nowhere near as flashy as the other Balearic islands but people really seem to like it that way," Mr Jackson said.

Expert View

Colin Guanaria, Bonnin Sanso

"The island has not been hit by the blight of overdevelopment which in turn has minimised the number of bank repossessions. It tends to be slightly older buyers who holiday here for many years and then buy for the family rather than an attempt at a buy-to-let holiday investment, and that gives the market a more sustainable base."

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