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.