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Many Banks in the last few years have also withdrawn mortgage facilities for non residents of Spain unless the applicant was buying something the bank themselves owned.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