Since September 2011 a number of Spanish Banks have implemented new scoring systems which assess client profiles and then produce client specific terms based on the overall risk profile of the client. The scoring systems are developed based on the performance of their back book and often penalise good applications because the client falls into a risk profile of non performers.
This is a change to the way Banks assess and reverts back to the pre boom days where Spanish Banks were renowned for lack of transparency and certainty.
Many Banks now work on this basis and also assess rate linked to products taken. With many life cover is compulsory to gaining an approval and for others life cover is compulsory to gain best rates.
Margins above Euribor have risen over the last two months, in some cases by as much as 50%. This is due to cost of funds and lack of liquidity.
The practice of placing floor rates on a mortgage deed has raised its ugly head again and is rarely explained properly to direct clients when they apply at branch level. Where possible these should be avoided as the rate will never drop below floor rate even if Euribors fall.
Debt to income ratios based on net incomes as shown on tax returns and debt payments as shown on credit files have tightened as 2011 has progressed, and in some cases Banks will only take into account 80% of net income but 100% of debt payments.
A great credit rating in the UK is meaningless to the Spanish Banks – they look at credit files merely to ascertain monthly outgoings and to check whether there any missed or late payments.
Financial assessment is made based on what shows on personal tax returns after deductions, nothing else is taken into account no matter how wealthy or asset rich you may be.
Clients with buy-to-lets will find Banks assess the full debt payments but not all the rental income if rental income is not declared on tax return or after costs is nil many will not assess the rent coming in at all.. Those with more than a couple of buy to lets in home country will almost certainly find themselves unable to meet any Banks criteria.
Minimum income levels are another area of change for many Banks as is minimum loan sizes and minimum valuation levels they will accept.
Clients in non-taxpaying jurisdictions or living in countries where credit files are not available may find it difficult to achieve above 50% loan to value.
Self build loans, equity release and re-mortgages are scarce on the ground with few lenders even offering any solutions. Those that do have very strict criteria on what is possible and buying a share of a property for those getting divorced or one owner needing to get out has become near on impossible if you need to borrow money above the Banks maximum percentage of the cost of the share being bought.
Document evidence requirements are very high with anything up to 12 months bank statements and three years tax returns required. Failure to ensure clear and concise packaging of an application and full documentation will result in the application sitting on a Banks table going no-where. What has not improved is the Banks ability to be forthright and honest with a client preferring to ignore an applicant than actually deal with what is required.
An experienced mortgage packager will at least ensure that any application is dealt with swiftly even if the answer is not what was hoped for. Direct branch applications often go into no man’s land for weeks.
Poor explanations by branch staff explaining exactly what terms the client will be signing for and also ensuring clients understand these are embedded in a deed and cannot be changed at a later date without extensive costs incurred have made the market dangerous for the uninitiated. Behaviors have reverted to type with the onus put on the client to ask the right questions rather than information being freely and transparently given.
There is now a two tier mortgage system in Spain. Buy Bank stock and pay more than you should for property but get high loan to values and rates from 0.25% above Euribor or find a good deal independently and expect to put in more cash with rates over 4%.
Either way use a good broker who takes fees on results so you can be sure you know exactly what you are taking on and what the alternatives are. Expect the process to be different to the UK as it is not the same. Do not pass over non refundable monies until you have an approval and for the safest way forward, and to give yourself maximum negotiating power on price of purchase, get an approval in place before you start looking at property.
This should cost nothing, except a bit of your time, never pay up front as there is no requirement for this, but be willing to pay on results. In this market an experienced and good broker will earn every penny of their fees.
International Mortgage Solutions