Spanish mortgage news

Last week and again this week a tranche of data has been released in Spain.

Apart from the fact that the trade surplus is a positive most of it did not make happy reading.

Some of the issues like rising mortgage delinquencies are as a consequence not just of rising numbers but because for the last year the amount of money being lent has been less than the loans redeemed. In a shrinking mortgage book therefore the number of loans gone bad will rise as a percentage of the total book.

Lending has fallen away most heavily in the resident cities and large towns. Pockets like Andalucía still show reasonable numbers as lenders lend in these areas to non residents as well as residents.

Numbers of loans being granted for holiday home owners etc appear to be stabilized at last year levels and may well increase as banks become more rather than less active in lending against their own properties in effort to sell them.

The last few weeks there has been renewed activity in the area of mortgage enquiries relating to new builds. As the 4% IVA, which is a discount to the 10% it will revert to in January 2013 comes to a close, people are trying to select and complete before the 31^st Dec deadline.

International Mortgage Solutions
www.international-mortgages.org

Average mortgage rate in Spain at 4.32%

Euribor is at a record low

Data out of Spain this week continues to be somewhat gloomy with on the surface little to cheer about on the financial front.

Many banks in Spain announced their half year profits this week and most made large provisions to cover future losses on assets and in order to come into line with new capital ratios enforced by the Bank of Spain.

Average interest rate data showed that average rates in Spain are now 4.32%. This means margins above Euribor are now topping 3% across the residential lending market in Spain.

What is interesting from this data is that whilst during boom times there was a significant difference between the margin above Euribor a Spanish Resident could achieve, in comparison to a Non Resident,  given Non Resident mortgage rates are now averaging 3% to 3.25% above Euribor, and total average rates are 4.32% this discrepancy on residency status has actually all but disappeared.

For many banks who previously saw Non Resident mortgages as more risky and therefore priced them accordingly, the view has changed somewhat.

As Spanish unemployment rises each month and economic data suggest further contraction borrowers from other countries, who are in a more stable economic environment, have become a more attractive proposition for the Spanish banks and are seen as a lower risk.

The mentality shift around Non Resident versus Resident loans is not true of every bank but there is a now a wind of change on how Non Resident applicants are viewed and the current pricing now reflects this change across a number of lenders.

International Mortgage Solutions
www.international-mortgages.org

Rates are reasonable, credit is still available and the sun is shining

This week has seen plenty of news about Spanish banks with little tangible substance or change to the status quo.

Germany has finally approved the 100bn bailout for Spanish banks but there still remain some differences of opinion as to exactly how the funds will be used. Who will require funds will be determined after the more detailed audit due to complete end of August being undertaken by an outside consultancy company. Almost certainly a Bad bank will be created for banks to place their stock in as has happened in Ireland.

Spain itself continues, despite the agreements for the banking system, to suffer in the bond market paying a high price for even 5 year bonds on Thursday.

Bankinter announced half year profits down on previous year but this included the setting aside of money to allow them to meet the 9% core capital ratio required by next year thus suggesting they are in a stronger position than some of their counterparts.

Bad debt ratios for Spanish banks climbed again at end of May, according to this weeks published figures and house prices and overall gross lending also fell.

Spains Banks, in general, say they expect to continue to offer new mortgages throughout this year and do not see the situation worsening. All banks however are giving preference to clients who buy bank owned stock rather than those buying private sales when it comes to the granting of loans.

Despite this 70% loans remain available for the right profile client and the market seems to have flattened out at a general 60% loan to value for private purchase and nonresident applicants. This may change if banks become concerned about further falls in house prices.

Average rates are 4.5% held at this level by the 12 month Euribor rate which is expected to hit a record low next month.

On the bright side, property choice is abundant at present and it is now the case that valuations above purchase prices are being seen on a more regular basis indicating some vendors desire to sell at very realistic prices. Rates are reasonable, credit is still available and the sun is shining.

International Mortgage Solutions
www.international-mortgages.org

Tighter regulations for Spain’s banks?

The European Central Bank

The last few days have seen the announcement of an immediate package of € 30bn from the Europe for injection directly into the Spanish Banks.

One of the areas the Spanish Government have had to agree to, to allow the rescue plan to move forward  is the immediate transference of regulatory power from the Bank of Spain to the European Central Bank.

Some will argue this is a gradual but clear chipping away of sovereign power and the start of things to come.

At ground level the more immediate questions are what impact this will have on mortgage lending in Spain.

Mortgage lending and advice in Spain currently is unregulated. Any company or individual can without prior experience or knowledge offer mortgage advice. Consumer protection on miss selling is nonexistent and Banks themselves are able to sell product without any clear transparency upfront, add unnecessary and unrequired linked products and few generate legal and binding offers of lending prior to completion.

Whilst most of the issues facing the Banks currently relate to commercial or semi commercial lending, and whilst there has been a tightening of processes and criteria’s post the boom, as has been seen in many other countries the regulatory focus will probably focus on the requirement to be able to document and evidence what has been done rather than actually ensuring what happens is fair reasonable and of sound risk.

It can be expected that in the medium term mortgage advice will be regulated and some form of qualification required. This in itself is a step in the right direction as long as it is implemented in a sensible manner rather than just being some form of bureaucratic process as is very much the case in the UK.

One can but hope the regulator will look at all the practices implemented by the Banks in terms of lending by providing far more consumer protection, insisting on more transparency upfront, without yet again tying the Banks up to a point where the only safe thing to do is a reject an application in case the regulator questions why you have lent.

In the short term the Banks will be wary of lending until the dust settles so this extra liquidity will definitely not find its way into the credit markets. The money will be used instead to prop up balance sheets and allow Banks to stay solvent as the recession deepens.

International Mortgage Solutions
www.international-mortgages.org

Bailout good for banks, not for borrowers

It was announced this week that the final details of the package for Spanish banks will be delayed from the 9^th of July to the 20^th July.

Any misinterpretation by the public that this rescue package would ensure credit started to flow again in Spain was quickly quashed  by bank leaders like the Chief Executive of Sabadell group who stated the banks who require aid, which is most of them, will find it more difficult to lend rather than the other way round.

BBVA Chief Executive also went to press this week stating that BBVA had no intention of reducing the price of the vast assets they hold to sell them through but would in fact hold on to them until prices increased. For BBVA it could be argued this is an option given their size and overall balance sheet strength but for other lenders it will not be. BBVA will find prices drop further because of what other banks have to do so how long they can hold out without being realistic remains to be seen. Brave words that I doubt he will finally be able to stick by.

On the ground mortgages still remain available for purchasers with average rates now 3% to 3.5% above 12 month Euribor with the Euribor dropping slightly again this month from 1.26% to 1.21% for completions in July.

Average rates for those buying bank owned stock are between 1.5% to 2% but often at the cost of negotiated purchase price.

International Mortgage Solutions
www.international-mortgages.org

Spanish bank audit

The audit undertaken by an outside company at the expense of € 2m Euros has stated the Banks in Spain in the event of a worsening economic situation would require € 62bn in support.

This is based on a further downturn of the property market equivalent this year to a drop of 19% in values.

What this audit has not done is assess whether the value of current assets held on the books of the Spanish Banks is actually realistic already. There is a big difference between what is required if prices drop further based on realistic values now, and what would be needed if prices drop further and the assets are already overstated.

The markets will sadly work this out for themselves so it will be unrealistic to expect the issuing of this data will have any positive medium term affect on cost of funds and generate a general increase in confidence levels. This will only come after the findings of the more detailed audit due out on the 31^st July.

The positives relating to what is happening is that, come what may, at some point this year the Banks will have to make positive moves to start to sell their stock at very realistic prices and deal with the problems, something they have all resisted until now.

The press comment on Spain continues to paint a bleaker picture than those of us on the ground see and the biggest danger is this becomes self perpetuating. Whilst the market is not at the level where serious investors should consider buying (we are some way away from the quick buck scenario) there are bargains out there for those buyers keen to make a life style purchase.

Banks despite all the bad news are in general still lending whilst a few Banks have withdrawn either openly or behind the scenes from lending, equally many have not.

As yet we have seen no increases in the margins being charged over and above those implemented across the board at the beginning of the year.

International Mortgage Solutions
www.international-mortgages.org

Spanish Mortgage News

Data issued recently confirms the situation on lending in Spain continues to be depressed.

Whilst Spanish Banks were the biggest up takers  of the European Central Banks cheap bonds issued over the last few months this money was predominately used to buy sovereign debt rather than to ease the credit squeeze.

Mortgage lending in Feb 2012 was down 9.4% from the previous month and 47.1% down from the same time the previous year.

Interest rates were up by 17.3% at an average granted rate of 4.54%.

All Banks plan to contract their lending books this year as they struggle to meet new balance sheet and provisioning stipulations introduced by the government.

IMS an independent broker based in Spain says unlike the national data our completions for the year on year February 2011 versus 2012 are up 28%.

Average granted rates were just over 4%.

It is still possible to obtain rates from 3.29% at the lower end subject to loan to values levels and linked products taken.

Heather from IMS said “The Spanish Banks do remain cautious but with the right support, this does not always impact on lending volumes.”

International Mortgage Solutions
www.international-mortgages.org