Spanish mortgage completions for September 2013

Monthly mortgage statsitics for Spain

Issued this morning by the INE in Spain are the monthly figures for mortgage completions in Spain.

What is the current trend

For another consecutive month the trend for mortgage completions relating to residential property continues to show major declines both in terms of month to month in 2013 and on an inter-month and inter-annual basis.

Only the Canary Islands are showing any year on year increase to both numbers of mortgages completed and capital lent. All other regions of Spain are showing sharp decreases.

Overall the numbers of mortgages completed are down a third on same time last year.

Interest rates 

Average interest rates dropped slightly in September to August due mainly to a decrease in the Euribor. Spanish Banks continue to grant over 90% of loans on a variable basis with less than 10% of of loans granted or completed on a fixed rate basis.

Redemptions

For another consecutive month numbers of mortgages redeemed were higher than new loans added. This is due to three key factors, lack of demand, tight criterias and high pricing of Spanish loans.

Read the full article: Spanish loans for dwellings

Bankinter in Spain makes pricing changes

This week Bankinter announced changes to its pricing for Spanish Mortgages.

What are the key changes and are they up or down.

Bankinter are dropping, for the first time since the crisis in Spain began, the margins they are charging above Euribor.

This is the second positive sign that the mortgage market may be opening up again after last week BBK announced they were moving back into non resident lending and launched new products.

Why are the Banks starting to look at lending again.

In the longer term it is important Banks in Spain provide mortgages as this is what brings new clients to their customer base and opens up the opportunity to cross sell other bank products.

It is equally important for Spain as a country that they have a competitive and accessible mortgage market to attract foreign investment into the construction industry. There are some real signs that buying property in Spain is again on the increase but along with cash buyers those requiring credit need to be welcomed back.

Who will benefit

All potential applicants will benefit from the changes but by far the biggest benefit will go to those clients who orginate from Scandanavia.

View full artcile about Bankinter Spanish mortgages

Deutsche Bank buys portfolio for SAREB

It was announced yesterday that the German Bank DB is buying a portfolio of asset backed loans from the Spanish bad bank SAREB.

The sale value of $ 435 million includes a number of commercial loans backed by the likes of, shopping centers and tourist attractions along with a number of loans made to developers.

The sale highlights the way in which the retail part of a Bank operates in comparison to its investment arm.

The sale clearly shows the investment side of the Bank has considered Spain, at the right price, a good bet and that the country despite its continuing pressures is starting to come out of the doldrums and that property may yet once again be a good investment for the future .

The retail side of Deutsche Bank

Let us compare the view of the investment arm of DB to the Spanish retail arm, DB Spain just this year pulled out of nonresident lending in Spain unless the applicant earned their income in Euros or were Scandinavian.  Citizens of the UK were precluded from borrowing and for Scandinavians DB put together an ill thought out, complicated currency mortgage which I doubt has many takers.

The rationale for making this move was highlighted as a concern by Germany DB over the increasing default and repossession ratios along with a general pulling back from any aggressive lending.

Currency fluctuations was rather bizarrely blamed for why UK residents were defaulting on loans although a long hard look at how they used to underwrite and validate cases would have been a much better indication of why the problems had occurred.

Why this year

The big question has been why did DB retail chose this year to pull away from Spanish lending. Since the crisis began DB along with all Spanish Banks had become far more stringent on their criteria’s and their checks, had lowered maximum loan to values, pulled away from lending solely against valuation level, and reduced the introducers they would work with.

The outcome of these measures was that the performance of all loans granted since 2009/2010 was very good with low to no defaults. Defaulting loans whilst high, all came from the previous era but because the process of repossession takes so long in Spain the figures whilst looking bad on the surface related to activity undertaken many years ago not the situation as it is today. The decision was very much behind the curve.

Will things change

It can only be hoped that if the German parent is starting to see value in Spain again that at some point next year DB retail Spain will be able to reverse its lending decision and come back into the retail mortgage market. Perhaps they will take advice from their investment arm!

Spanish Bank announces closures, but another launches new Spanish Mortgage product.

Which Bank in Spain is closing branches

Catalunya Caixa, who are owned by the Spanish Government are following in the footsteps of Bankia and closing a number of branches.

Particularly hard hit, as with Bankia, is the coastal areas of Andalucía.

 Catalunya Caixa are withdrawing from all their branches except for one in Malaga which will remain open.With Northern based roots the Bank will withdraw to its heartland in an effort to make itself a saleable entity.

Catalunya Caixas current problems and its requirement for a rescue were driven heavily by its lending to developers and businesses rather than individual loans.

Good news on mortgage product in Spain

On the positive side another Bank in Spain who had withdrawn, for the last couple of years, from lending in the nonresident arena has announced its intention to start lending again. This is good news for those buying in Spain who want the option to take a Spanish mortgage rather than use all their cash reserves.

The product has very tight criteria’s and will only be suitable for applicants with high levels of net incomes and low debts but the overall terms will be amongst the most attractive currently available.

When assessing affordability the Bank will only take account 75% of the net incomes shown on personal tax returns and will then look to see an overall debt to income ratio of no more than 35%.

Who might struggle to meet Bank criteria

Buy to let landlords from the UK will find the product out of their reach on most occasions as no rent generated will be taken into account, but full monthly mortgage liabilities will be.

Because only incomes shown on personal tax returns will be taken into account self employed may also find the criteria difficult to meet.

What are the product terms

The first year rate will 4.5% followed by Euribor plus 3%. The margin above Euribor is the cheapest on the market that comes without compulsory tie-ins outside of a Bank account and buildings insurance.

The applicants will be required to pay the premium for the buildings insurance for the first 5 years at completion. This is to avoid the client taking the buildings insurance in the first year and moving provider in the second year. After the 5^th year the client will be able to take other buildings insurance as long as the insurance is made out to the benefit of the Bank.

The maximum loan to value for nonresident applications will be 60% which is in line with most of market providers.

With their closest rivals charging 3.6% above Euribor a 3% margin without compulsory products is very competitive.

It can but be hoped that others will follow suit and either start to reduce margins to attract more business or for those out of it, come back into the lending arena.

Will the Spanish Mortgage market start moving in 2014

What is the current situation for Spanish Mortgages

For over three years now all Banks in Spain have seen net outflows on their mortgage books.

Due to lack of liquidity, high costs of funds and the overall default situation in Spain Banks have been happy to reduce their overall lending exposure. 

Internal demand has been slow due to high unemployment and lack of capital for deposits but high rates and tight criteria’s has also been off putting for international buyers when considering a Spanish mortgage.

Many Banks in the last few years have also withdrawn mortgage facilities for non residents of Spain unless the applicant was buying something the bank themselves owned.

What is going to change and why

Over the last few weeks and days there seem to be a slight wind of change. BBVA have stated they expect demand to rise by the third quarter of 2014 and are looking at a situation where more mortgages are added to the book than are redeemed.

One Bank this week has had national meetings with Staff to tell them they expect to be back providing mortgages in Spain early 2014. Rationale has included a requirement to obtain new business to replace incomes lost on the removal of floor rates from their portfolio.

Whilst this feedback is linked to one lender at present, it is logical others will follow suit. Banks attract new clients by providing lending and without new mortgages being added future earnings will come under extreme pressure.

Once one Spanish Bank starts to push mortgages it becomes difficult for others not to follow.

What can we expect the mortgage terms to look like

Whilst no details are available at present the Bank seems to be indicating they will come back into the market with rates that are competitive and lower than their counterparts. With average margins above Euribor exceeding 3.5% the general feel is they will re-launch with rates in the region of 3% above Euribor, with minimum compulsory products required to achieve this rate.

For non residents of Spain the maximum loan to value is likely to be 60% but this fairly standard in current market. For 70% borrowing it is likely a premium will still have to be paid but as the market relaxes it is possible general margins will drop.

How important is it the Spanish finance market starts to ease.

An active and competitive mortgage market is required in order to encourage sales and it has been to date one of the areas holding back buyers in Spain as it has been difficult for anyone, other than those who do not require a mortgage, to consider buying an independent property.   

Are Spanish Banks stealing Estate Agents clients

Why would a Bank want to take an agents client

Sales of property in Spain appear to be recovering but the default situation in Spain on existing loans continues to grow. Spanish Banks are acquiring more and more properties via the courts each month and this trend is unlikely to change for the next couple of years.

Heavily focused on selling their own properties Spanish Banks are incentivizing their staff to sell properties from their own portfolio and are not incentivizing them to add new mortgage loans for the purchase of independent properties.

This trend has meant that often when clients either approach Banks direct for a Spanish mortgage or they are directed by their estate agent to a Bank to apply for a loan the staff are just hell bent on trying to sell them one of their own properties rather than dealing with the request for a mortgage.

Even if the Bank in Spain starts to process a requested loan there is often no level of urgency, the client is not chased for presentation of documentation, and often when documentation is sent if something is missing the client is not informed until they themselves call the Bank to check on progress.

Estate agents often find themselves cut out of the loop and unable to find out about progress on the mortgage application or be given any idea of timescales.

How can the situation be avoided

An efficient and service friendly way for estate agents to avoid this situation can be to direct clients to an independent and professional mortgage broker who sits in between the client and direct contact with the Bank.

Not only does this avoid the client being bombarded with Bank owned stock opportunities that may provide little value for money, ensures the applicant gets professional and independent advice but it also means the application is dealt with efficiently, quickly with high levels of communication to all involved parties.

How do brokers work 

A broker like IMS will have high levels of ability to manage Spanish mortgage applications both by way of encouraging the client to deliver the documents requested, and by applying pressure on the Banks to process the application quickly and effectively. At IMS we provide all involved parties with automatic and pro-active communication making the whole process as painless and seamless as is possible in the current difficult market conditions.

At IMS we provide a pre-qualification service for no cost, along with a free and no obligation full financial approval service so clients can come to Spain ready to buy with all their finances in place.

We have been operating in Spain since 2002 and have placed over € 500 million of lending with the Spanish Banks.

Mortgages constituted in Spain for August 2013

Today saw the release of the monthly Spanish Mortgage statistics for August 2013 as supplied the by the national statistics office.

Whilst the overall numbers showed that in terms of average loan size there was an increase from the same month of last year, when this was broken down into just residential dwellings ,the average loan size for homes had in fact dropped. The drop in loan size for dwellings will reflect perhaps lower house prices and lower loan to values being granted.

When looking at the numbers of Spanish Mortgages granted and signed rather the average loan amount the decreases in all areas reported on are considerable. August 2013 showed another month of downward trends in terms of numbers of loans and capital lent against, August of last year, when compared to month of July 2013, and on a year on year basis.

Average Interest rates remained relatively stable with a small fluctuation upwards from July 2013. The last couple of months have seen the Euribor edge up slightly and Banks continue to increase margins above rather than decrease them.

The most worrying statistic coming from the monthly data is that for another month the amount of mortgages being canceled outstripped by some way the amount of new Spanish Mortgages constituted. There remains in August as in other months a large outflow of mortgages in Spain as Banks continue either by design or due to lack of demand to shrink their overall mortgage book.

A shrinking mortgage book will eventually put severe pressure on earnings as well as causing the level of bad loans as a percentage of the overall book to increase, even if the number of mortgages in default drops.

In a recent statement BBVA stated they expected the trend of net outflows for mortgages in Spain to continue for the rest of 2013 and that there would be an increase in numbers of mortgages completed in the latter part of 2014. How real this prediction is will remain to be seen. The trend relating to negative outflows of loans saw an overview of the possible earning pressures and impact on Spanish Banks by the lack of new Spanish Mortgages being constituted being released last week by an investment advisory company in the US as a counter to more positive news about Spanish Banks and their liquidity.

At grassroots levels we continue to see banks focused on granting mortgages for their own stock rather than for the purchase of independent sales and a continuing usage of high margins and linked products to discourage demand.

Is the financial crisis in Spain coming to an end ?

Is the crisis in Spain really coming to an end?

In the last few weeks we have seen positive statements about the ongoing recovery in Spain and some data to back this up. The big question is has the crisis really started to turn the corner or are we just seeing improvements in the areas that were obviously broken only to find further problems down the road rear their ugly heads.

What does the past tell us ?

In order to answer this question I think it is important to look back at recessions and financially hard times in the UK. Spain is currently going through some very similar problems experienced after the boom years of the 80s in the UK.

In the 80s property prices soared, debt levels were high and everybody felt good because they had security of their little personal castle making them feel wealthy and unafraid to spend.

Every man and his dog with or without the relevant experience became a property landlord or a developer as money was lent speculatively rather than off the back of personal affordability.

How did UK Banks respond to the boom?

Banks lent off the back of the new insurance policies called MIGS and happily gave mortgages of 95% to 100% against a rising market. All UK banks became retail space bandits taking every zone A space available in the high streets. Landlords rubbed their hands at the rental levels Banks were prepared to pay and the knock on effect of this was the rents for retail space soared and every other unit was filled with a Bank branch.

The traditionally profitable banks unlike other retailers paid little heed to their fixed cost base as they chased what seemed like a never ending boom.

So what happened next

Then reality hit. Interest rates went through the roof. Inflation soared. Unemployment started to climb and negative equity became the buzz word of the 90s.

Whilst the issues started to affect all walks of life, the Banks a bit like large cruise liners, found it difficult to adapt to the new conditions quickly. Strong bank unions made it difficult to implement new working practices and reduce staff costs, mergers and rebranding took an age and extraction from an oversupply within the branch network was well behind the economic curve.

At just the time when other areas started to show improvement the Banking sector went into decline. Redundancies came thick and fast across the board and not just in the cashier population, redundancies of middle and senior managers was rife. Head offices of merged Banks amalgamated processes so were not left outside the pain, and the Banks began an exodus from the high street. Mortgages went into net outflows as property sales and the mortgage market became stagnant.

The most visual aspect of all of this was the death as we knew it of the high street. Prime locations became empty but unrealistic Landlords, used to high levels of rent, took too long to wake up and smell the coffee and realize realistic and lower rents for cost conscious retailers and new business that were emerging from recession was the name of the game.

Mortgage defaults continued to rise as employees from previously secure and safe employment were made redundant in an industry that was contracting.

Did it get better ?

It took some years for this situation to improve and the reality is the UK high street never recovered to the levels previously seen. The issues within the Banking sector resounded on for a number of years well past the time when the rest of the economy had recovered. The Banking sector eventually came through more profitable, more cost effective and with significantly less consumer choice ready to throw themselves full pelt into the next crisis. Treasury departments rather than retail arms made the profits until Lehman’s collapsed and it became apparent that making your money outside of retail banking also has its risks.

The UK government had to work hard to attract new industries and outside investment using tax breaks and transparent working practices within the public sector.

So what is happening in Spain?

Read everything that happened in the UK, make some allowances for the fact the world has itself changed, being more linked than back in the 80s, and the story is very similar.

Yes exports are up. Yes there is some growth and yes the Spanish Banks capital and liquidity issues seem to be improving. However 2013 and 2014 will I fear see much of this feel good factor disappear in a puff of new problems.

How did Spanish Banks respond to the boom times?

During the boom times Spanish Mortgages were lent at high loan to values, all Spanish Banks increased their mortgage books significantly, lent speculatively and took little control of their cost base. All Spanish Banks in a race to do more Spanish Mortgages rushed to open new branches in every available retail unit they could find.

What is happening in Spain now?

Now the picture has changed and whilst for the last few years the Banks have been battling with survival relating to other issues, they are now some 5 years after the event focusing on their long term profitability. The Banks are finally reducing their cost base and taking the appropriate actions. Barclays are closing over 1000 branches, Bankia are closing over a 1000 branches. The Sabadell group will certainly after the takeover of CAM and Lloyds be making significant reductions. Caixa Cataluyna are closing a third of their branches. The high street in Spain will see a minimum of 5,000 empty units in the next two years just from closures of Bank branches.

Net outflow on Spanish Mortgages has been happening for many months now, not just driven by a lack of demand, but also driven by high pricing, unattractive terms and difficulties in getting loans approved. Until Banks adjust their cost base this it seems is the only way they can make profit.

Unemployment will rise just like in the UK. The worst affected will be the over 45,s who spent years working often in the same Bank branch and almost certainly for the same employer. These people know no other industry and have been very sheltered up until now. They will find it difficult if not impossible to gain new employment so along with the under 25, s in Spain will become a lost generation.

Is Spain really on the road to recovery

Not really. Landlords cushioned from the last few difficult years by having a prime locations with top dollar rent will find their units empty with no takers particularly at the current rental levels.

Until the Banking sector has sorted itself out, slimmed down significantly and started lending again the crisis is believe me far from over. It will take a few more years for the high street rents to drop to affordable levels so new businesses can take the plunge and for the foreseeable future unemployment in the professional and white collar industries will continue to climb.

So will it all end and what needs to be done?

There is no reason to believe matters will not finally be resolved but there is much pain to come. Spain unlike the UK does not have the same welfare support, people will starve and will be homeless and this will not just be immigrants and blue collar workers, which is predominately who has been affected so far. The gap between the rich and the poor is widening and this is when civil unrest can start.

There is little sign the Spanish Government is taking any of these matters into consideration. Bureaucracy still reigns, laws are not transparent, particularly in terms of taxation and social security. Public departments act more like bandits robbing at every opportunity without even having to demonstrate they are correct.

The quickest way out of the current situation is to attract outside investment and convince new businesses Spain is the place to be. Anyone who looks into the possibilities in Spain and understands properly will run a mile. Most of us living in Spain, including those born here, at some point will have happen to them something that finally breaks the camel’s back and will leave! You can only fight for so long before the white flag has to be waved.

Lessons need to be learnt quickly from what has happened elsewhere in the world because the cycle is going to happen in its totality before full recovery. The difference is, Spain is doing nothing to make it easier, more attractive and fairer to allow replacement of old industries by new and to help good quality businesses to survive.

Barclays Bank in Spain out of date information

News today from Barclays announces the loss of their customer Service executive. This follows on from poor data about the general complaints level for Barclays in the UK.

Is it therefore of surprise that Barclays Spain seems to suffer from the same ineffectiveness.

If you search under ”Spanish Mortgages” on Google, Barclays ( overseas) Spain appears on page 1. On the face of it, it is a nice corporate looking site full of good information and helpful hints.

Then we get to the nitty gritty.

If you go to the subpages outlining their Spanish Mortgage products available, all information is out of date and anything but factual.

What does the website say

Barclays state they have in Spain

·         An interest only mortgage up to 50% loan to value. This is in fact not true and has not been for at least 3 years now. All loans are repayment.

·         They say they offer their “Super Mortgage” at 0.95% above 12 month Euribor for 60% loan to value. In fact they currently offer a 65% loan but at 3.7% above Euribor.

·         They also have a credit mortgage, so like an offset ,advertised but again this product has not been available for many years.

·         The term over which a loan can be run is stated at 30 years when in fact maximum is 25 years.

·         The text on all the loans limits maximum loan sizes to € 500k when in fact no maximum loan size applies.

The side notes with asterix state that rates are accurate as of 2008 so it is some 5 years since anyone even looked at updating the site.

In terms of customer service their international department, for initial review and assessment of Spanish Applications, is made up of two people. All applications whether direct or from Branch network must go through this department. One of the personnel is on maternity leave and the other goes on holiday in the next few days so no applications will be progressed for the next two weeks. In a market where non refundable deposits could be riding on efficient mortgage processing this hardly seems to be an ideal situation.

Not only is this a very poor show from one of the best known Banks in the world but also again shows what poor quality you receive when using search terms via Google.

Spanish mortgage completions July 2013

Last week the INE in Spain published the monthly Spanish Mortgage completions for July of this year.

The report from the INE in Spain outlines how many loans were registered in July versus mortgages cancelled and redeemed along with information on the regional numbers and split of type of lending.

Key data

Spanish Mortgages for urbanized homes made up  48.4% of all capital lent, with country properties only making up 8.9% of the capital lent and land loans 13.6% of capital lent.

91.2% of all Spanish loans completed in the month of July were on a variable rate basis. The Euribor remained the favorite index for variable rate loans. Fixed rate mortgages were used in only 8% of all transactions. Average interest rates for July were 4.40% for Spanish mortgages granted on homes rather than commercial which was slightly lower than the rates of July 2012.

July figures showed the number of mortgages completed in Spain dropped by 42% as of the same corresponding month in 2012. The average value of each granted mortgage increased from June 2013 but the number of new residential mortgages dropped 2% from the month of June and the current year on year decrease now stands at 26.1% less than the previous year. The amount of total capital lent in 2013 to date has fallen by 29.3% from the same time in 2012.

Redemptions and Subrogation

Spanish Banks are reducing each month the amount of loans they are completing under subrogation. Subrogation allows new buyers to take over existing loans. The Banks are moving away from regularly agreeing subrogation because existing loan deeds have historic and preferential rates than new loans. In July 2013 subrogation of mortgages dropped by 58% in comparison to July 2012.

Year on year and for at least 24 consecutive months mortgages cancelled outstripped the amount of new loans completed both in turn of numbers and capital. The number of loans redeemed for residential homes was 24,599 in July and number of new loans completed on residential homes totaled 13,777. July saw the highest net outflow from the Banks mortgage books since the crisis began.

Their appears to be a big gap in the market for a new lender in Spain.

Google searches how relevant are they

A recent article in OPP magazine asks the question as to whether Google is friend or foe for business trying to get their messages out to the buying public.

Immaterial of whether business itself believes the search engine serves their marketing requirement perhaps a more important question is “do Google still provide the service they did to the public when searching for relevant information”.

Quotes from Google themselves state that the recent Penguin and Panda changes penalize businesses that have spent money on trying to boost their rankings and benefits those that spent time on the quality and content of their sites. What a load of baloney.

I am sorry but logic says that it follows that in general those companies that spent money on optimization also spent money and time on keeping their sites relevant and pertinent to the search terms they were trying to access. Why spend lots of money on site optimization just to have a site nobody was interested in. You spend money to gain clients, if the site is not relevant potential clients will not transact with you so all the money spent on ranking highly is wasted.

Of course a few sites will have focused entirely on optimization at the cost of the quality of the site but these will be few and far between. According to Jayson De Mers CEO of AudienceRoom the changes will benefit in the short term the small sites that engaged in quality content, building ethical links and avoiding sketchy techniques.

So let us put the quality of search theory to the test.

For many years International Mortgage Solutions the company I own ranked highly on page 1 of Google when searching under Spanish Mortgages, this is the activity we are expert in.

Yes "hands up" I have spent over the years various amounts of money on web optimization but I also have spent many hours and money on keeping my website up to date, relevant and user friendly.Since the changes of last year we have however disappeared on Google without a trace to pages 8 or 9.

Below is an analysis of the sites that have benefited from the changes and now rank on page 1 and lets look at what kind of "quality" they are providing to serious clients who actually want to have a mortgage in Spain.

Of the first 10 sites showing we have

Euro residents – www.euroresidents.com/property/spain_mortgages.htm This is a portal for everything Spanish who have a small and out of date section on Spanish Mortgages. They guide you to Orange Finance who if you then search on net appear to no longer exist.

Which magazine- www.which.co.uk nothing wrong with the article as you would expect from Which but the information relates to some years ago and was written some years ago so bears no resemblance to the current situation on Spanish Mortgages.

Spanish mortgage services- Lifted content straight from my website but as it was some years ago before various changes to the market. This means the content is now out of date and was not in fact written by them and would have been duplicate content at some point. Best of all they did not even bother reading it properly because in one paragraph it actually says "at IMS "which is the trading brand I use.

Mortgage direct sl- Again all information is out of date by some years. They talk of margins above Euribor of 0.45% when in fact you will now not get less than 3.6% above, they also state they can do lifetime loans when the two providers of this type of product left Spain some 4 years ago, and interest only mortgages which are no longer available.

 International Private Finance - On enquiry to them only do loans above 500k and take fees upfront. Promote a rate table that states rates correct as of 3/9/2012.

Europa mortgages - Almost the best of all as they make a big statement that you will find lots of information on many sites but unlike others they ensure their information is kept up to date. The text then relates to information from around 2009.

SPF- www.spf.co.uk/buyingabroad/spain/pages/lendingcriteria.aspx Last option on page 1 again lots of misinformation like minimum loan sizes are € 150k, (not true), and interest only is available.

So out of the 10 websites on page 1 of Google 7 are providing out of date and poor quality information. How on earth can this be good for the consumer? If you take this single search term and assume the Google changes have had the same affect across all search terms then it is probably just a matter of time before Google lose their number 1 spot as the obvious search engine.

Mortgage Default figures Spain behind the Headlines

 Spanish Banks published new default figures this week at close to 12% of their loan book.

In Spain defaults have increased over the last few years as the recession bites. Unemployment is at a record high and the last few months have seen an increase in white collar layoffs.The number of people in arrears is climbing but this is not the full picture.

Behind the Headline figures

Behind the headline figures which are bad enough in themselves there lies another story.

Due to Spanish Banks contracting their lending books with every month showing a net outflow of mortgages the default ratio is naturally climbing as a percentage of overall capital outstanding. If the Spanish Banks reduce their mortgage books it is inevitable the default ratio will increase.Part of the answer to reducing default ratios as a percentage of your book is to add performing loans at the front end.

Spanish Mortgages for both Spanish nationals and non residents are now difficult to achieve as lenders are working to very tight criteria’s making it difficult for applicants to meet risk parameters. Whilst sound underwriting is essential some of the tight criteria’s are knee jerk reactions to poor lending decisions of the past and preclude acceptable applicants from gaining a loan even though the likelihood of them defaulting is low. It is now necessary for all mortgage applicants to input a large amount of their own cash into the property transaction, this in itself encourages mortgage holders to perform as in a repossession scenario they not only risk losing the house, creating long term issues for themselves but also will lose the money they have put into the transaction themselves.

Pricing of loans is expensive partly due to cost of funds for the Spanish Banks and partly due to Banks trying to claw back profit. Particularly for non residents of Spain the current pricing is off putting when considering a Spanish Mortgage as are the practice of adding unnecessary and costly ancillary products as compulsory.

Banks in Spain are very focused on lending where the loan relates to the sale of one of their property portfolio. Whilst it makes some sense to offer deals to help sell the those applying for a loan to buy bank owned stock given most applicants applying to buy bank owned stock are looking for much higher loan to values and lower rates those looking for an independent loan, mortgages being added to the book are not necessarily improving the overall quality.

To enhance long term strength and overall profitability in the future Spanish Banks really need to consider a more diverse lending strategy than the rather negative strategy all are currently applying.