Are Spanish Mortgages more expensive for Foreigners

A recent article in the Telegraph about Retirees coming back to Spain to snap up cut price property also covered a number of issues surrounding Spanish Mortgages.

The suggestion was that non residents buying in Spain who take a mortgage can expect to pay up to double the rate a Spanish resident would pay.

Is this true

It is only true in the case where the resident is buying their main home. For a second home or for investment a Spanish resident, as in most countries, can expect pay much higher rates when contracting a loan.

For Foreign buyers who are not working in Spain and in the tax system the property in Spain is treated not as a main residence so rates are higher. This is the case even if the purchase is to be the main home. To achieve lower rates the buyer must first put themselves into the tax system and be a full Spanish resident.

For non nationals buying in the UK, where mortgages are available, which is few and far between, rates are higher to reflect the extra deemed risk. The same is true for Spanish Banks who lend freely but see non residents buying a holiday home as a higher risk than a resident who is buying a home to live in.

Are non resident mortgage rates double resident rates

With the current improvements we have seen over the last few weeks the average rate residents will pay is not half of what a foreigner will pay. Yes the headlines talk of 1.25% above Euribor but to achieve this rate the Spanish applicant will have to have a low loan to value, a private pension with the Bank along with payment protection, life cover and buildings and contents insurance, and have their nomina paid into the account each month.

Best rates for a non resident currently is 2% above Euribor with life cover, contents insurance and a Bank account as compulsory.

Should I contract a Spanish Mortgage or borrow at home

There is no one right solution for everybody. For some people buying in Spain releasing funds secured against a UK home will be the best solution and for others a Spanish Mortgage may provide a better route. Taking professional and experienced advice from someone who understands both markets and can outline the pors and cons of each is probably the best first step in making the right desicion for your circumstances. 

Read the full article : Foreigners pay higher rates

 

Mortgage News Spain Barclays to leave Spain

Amongst a number of cuts announced to day Barclays group have confirmed they will be leaving Spain.

Why are they withdrawing

Like most Spanish Banks Barclays have suffered in the last few years from higher provisioning requirements, falling incomes and increasing defaults.

As a known UK brand Barclays have one of the largest non resident mortgage books in Spain. Failure during the peak years to effectively manage risk have compounded the problems the Spanish arm has.

What were the risk assessment failures

Barclays were one of the few Banks to offer 80% loan to value during the peak years and linked this solely to valuation in a rising price market. This meant often they were actually lending 100% or more. The inexperienced members of the risk teams and the Branches also understood little about how to assess or check the credibilty of UK style paperowrk when assessing an application through the mortgage process.

This obvious lack of experience or knowledge made them a prime target for fraudulent applications and they were hit hard during the period of high volumes.

What other factors have had an impact

Barclays swung from offering the lowest possible rates and with lax criterias to closing the doors completley for a period of time to new applications, to opening them again but with very tight criteria. Aimed at attracting high net worth individuals their most recent offering failed to recognise that the type of client they wanted had complex financial situations and that to expect every client to fit tick boxes was never going to work.

Read the full article: Barclays withdraw from Spain

Spanish Banks quarterly profit reports

Last week saw all the Spanish banks report on their performance for the first quarter of 2014.

Apart from BBVA  the second largest Bank in Spain by capitalisation all other Banks announced a general improvement to both overall profitibilty and a reduction in the level of Spanish Mortgages in default as a percentage of the book.


Bankinter whilst reporting slightly lower profits than market predictions had one of the best increases in profits. Bankinter has a much lower default percentage than most of the other big players at 5.2% when the average across all lenders is above 13%.

Bankia the Government owned banking group also showed a quarter on quarter and a year on year improvement. Bankia more than any other Bank in Spain has benefited from passing its bad assets to SAREB who was set up to help Banks remove their vast property portfolios from their own balance sheets.

Are the improvements having an effect on Spanish Mortgages

In the resident market there is a steady but sure uptrun in the mortgage market. The improvements include a price war for attracting commercial lending along with a reduction in rates for residential loans particularily at the lower loan to value level.

For non Residents there has been little movement on terms and conditions but we are starting to see this slwoly chnage or Banks at least recognise change is needed.

New product for loans on purchases above 400k has been launched by Sabadell in the last couple of months and other Banks are willing to move from standard pricing to secure quality clients.

Who is buying in Spain with credit still tight

Clients buying in Spain and requiring legal services are rising in numbers and many of these are still cash buyers. It is becoming however more obvious that for the property market to recover fully mortgages in Spain must start to flow more easily and product adjustments happen. The Banks now have lending targets so are keeping a watchful eye on each other and once one moves significantly the others will follow.

Read full article:Spanish banks report lower mortgage defaults

Spanish mortgage trends for February 2014

Released today are the mortgage figures for Spanish Lending within the month of February.

Despite some positive news reported this week relating to the overall situation of Spanish Banks this has yet to feed through to an increase in new loans constituted.

The data which is taken from land registry is always a little behind the curve as it can take up to three months from completion for Land registry to report, but looking at year on year figures the trend is still downwards.

Year on year mortgage figures

Year on year the number of Spanish loans have dropped by 32.7% in comparision to last year and 33.7% down on capital lent.

Interest rates

Average interest rates at 4.11% is slightly down on Januarys average rate and is the lowest average rate for Spanish Loans since March 2013.

44.5% of all mortgage products granted related to residential loans showing a higher split of all loans relating to other Urban properties which suggest an upturn in commercial lending.

Regional variations

The Balearics continues to be the region where the decrease in mortgage activity is at its lowest on a year on year basis which ties in with this regions better  than average house sale performance

Read the full article : February mortgage news for Spain

Changes to UK mortgage market bring it closer to Mortgages in Spain

Announced today by the regulatory body covering UK lending were new rules that must be implemented when a Bank assesses an applicant for mortgage purposes.

What are the changes to how mortgage applications will be approved

The two key changes are a move away from gross income multipliers to looking at affordibilty based on actual incomes and outgoings and the introduction of a benchmark interest rate of 7% against which all applicants must be assessed to allow for future rate increases.

How do applications for mortgages in Spain currently work

For years Spanish Banks have worked to affordibilty ratios based on net incomes as shown on personal tax returns versus outgoings on debt and loan repayments. In general terms each Bank looks to see that outgoings do not exceed on average 35% of incomes. The documents required by a Spanish Bank will reflect the need to check expenditure in these areas.

Whereas the Spanish Banks only take into account expenditure on debts, it is reported that UK lenders will also be required to take into account all outgoings which could include things like Gym membership, Pension contributions and telecommunication contracts.

Why the changes to mortgage assessment

Whilst it could be argued that working to affordibilty ratios has not helped the default situation for Spanish Banks this is against a background of severe and unusual economical turmoil and the situation could of been worse had affordibilty ratios not been the key underwriting tool. The changes in the UK are to ensure that mortgages are granted without stretching the applicants resources to breaking point should rates increase or the mortgagees situation change.

Will the changes dampen the housing market in UK

It is possible the new restrictions could depress demand. A tighter mortgage market with less flexibilty on criteria has certainly had an impact on overall lending in Spain.  For UK residents however a mortgage in Spain remains normally attached to the purchase of second home and not a main residence, the impact of the new rules will be more profound where linked to what is a primary residence.

Read the full article: Changes to UK mortgage market bring risk assessment in line with Spain

Outlook for mortgages in Spain

Early data published by the INE shows little sign of improvements to the level of mortgages being granted in Spain.

Is there any positive movement for Spanish Loans 

Whilst upfront activity of buyers going through the mortgage application process has been higher in the first quarter indications are from the Spanish Banks that targets for mortgage completions in the first quarter will fall below expectations.

January data out from the INE in Spain seems to support this with January figures showing a decrease in loans constituted below those of the previuos year.

February figures may be a bit more encouraging as January year on year figures will still reflect the fact in late 2012 many buyers raced to complete to beat the end of the tax breaks. The figures shown in the data are from Land Registry not Notaries so there is a lead lag on timescales.

What were the key indicators for January

Overall numbers of Spanish mortgages were down year on year and the numbers of mortgages completed in January in comparision to the December showed a lower increase than the same data from 2012/ 2013. 

Average loan size was up by 1.3% and average interest rates rose slightly as well.

Fitch Ratings Agency annual mortgage report

In a seperate report Fitch ratings agency threw caution on the Spanish Mortgage market and the overall situation for both property prices and arrears throughout 2014. Fitch anticipate arrears peaking in 2014 before starting to fall and alos predict they expect property prices which have fallen by an average of 36% to continue to drop to an average of 40% from the peak before starting to recover in 2015.

In the last quarter of 2013 Spanish banks sold property from their stock at more than 70% below the original valuation levels. This compares with the average discount of 48% since 2009. The indications are Banks are now heavily discounting property in order to clear their books. In order to dispose of large portfolios in one go it is necessary for the Banks to heavily discount prices for the Investment Funds that have popped up over the last few months.

Read full article : Mortgage market indexes in Spain

New Spanish Mortgage product for Nothern Europeans

In the last few weeks Banks in Spain have been opening up for credit.

What are the changes

Whilst this is across the board the Banks are very focussed at present on attracting for mortgages the Northern Europeans.

Falling into this pot are all the Scandanavian countries, Swiss nationals along with the Dutch and those residing in Belgium.

Why are the Spanish Banks keen to attract these clients

There are a number of reasons why the Banks are focussing on these populations. Firstly there are higher numbers of them purchasing in Spain due to low purchase prices and good exchange rates. Secondly the Spanish Banks experience of clients from these countries is that they are less likley than others to default, and thirdly the general veiw is their home economies are stronger than the UK and Southern European countries.

The key incentives the Banks have put in place to gain new business are a reduction in mortgage rates and higher loan to values. For the Scandinavians and Swiss they will benefit from both ends, an increase to 70% loan to value and a reduction in rates. For Dutch and Belgians it is an increase in loan to values from 60% to 70%.

What facilties were available before

Prior to the new mortgage services and products being available only NYKredit a Dansih Bank offered special terms for clients from Sweden, Norway and Denmark. Whilst their product remians attractive they only cover certain parts of Spain and have minimum loan sizes.

The changes are to be welcomed as part of the overall recovery in Spain but in order for things to start flowing it needs to be recognized that margins must come down across the board for all nationalties.

Read the full article : Mortgage news for Scandanavians, Swiss and German Buyers in Spain