Property in Spain is already on the brink of seeing prices drop for the first time in twenty years, and large numbers of second home properties being put on the market could be the trigger that will see deflation in the near future.



One way overseas property home owners can protect their investment is to rent their property out to holidaymakers, and many will turn to this option if they have bought their home with a mortgage, and repayments increase as interest rates rise in Spain and other European countries.

But some will find this option closed to them, as they either investigate the possibility for the first time, or try to increase occupancy levels from previous years while interest rates and mortgage repayment levels were lower.

Low interest rates and cheap mortgage repayments have been the key to the boom in British people buying property in Spain recently, and affordability has been easy on low levels of occupancy for those letting their homes out. British overseas home owners are being squeezed on higher interest rates after five rate increases in the UK base rate over the last year, as well as higher repayments on their second homes.

Local authorities in Spain are beginning to crack down on second home owners letting out their holiday homes by insisting each property has to have a tourist licence - and very few do.

It's an issue that has only come to light recently, with few if any buyers asking estate agents in Spain if they need one - and if an estate agent does know he or she has been unlikely to say anything as renting out a holiday home is important to many potential buyers - and what could be viewed as a wrong answer might scupper a deal, and the agent's commission.

But property owners can face a fine of up to 30,000 Euros if they don't have the correct tourist licence if caught - enough in itself to see for sale signs going up on the Spanish Costas.

The Daily Telegraph, a leading daily newspaper in the UK, reports that many of the 300,000 British investors in Spain's overheated property market have already turned to the lucrative holiday rentals sector and many more are considering doing so to ease their mounting financial strain.

But, seduced by the prospect of netting GBP 1,000 a week in high season for a two-bedroom flat with a sea view, few realise that they face swingeing fines of up to 30,000 Euros because they are breaking tourism laws.

A spokesman for the Spanish Tourist Authority commented that there are strict conditions before properties are approved for rental to holidaymakers, but hardly any are licensed, which means letting them to tourists is illegal.

Already several British investors in Mallorca, the second most popular holiday-home market after the Costa del Sol, have fallen foul of Spanish law according to the Telegraph.

And while the British who have moved to Spain over the last twenty years have seen their investments rise in value, consistently above the price of inflation, they could been in for an unpleasant surprise with the contining signs that the housing market in Spain is weak, and prices could soon drop.

So spectacular have the price rises been over the last ten years that many Spanish homes on the Costas have doubled and more in value, but a return to late 1980's price drops is more than just a possibility with another rise or two in interest rates in the UK and Spain.