In a recent statement the owners of Santander the Botin’s outlined their expectation that arrears in Spain had peaked and they expected matters and prices to improve this year.
The rather optimistic view is at odds with what is happening to other banks and their view of the market.
It is difficult to see how arrears in Spain; particularly for a bank like Santander who lent predominately to the resident market; will actually drop over coming months.
Unemployment all be it predominately for the younger generation is at 21%. Most businesses particularly those in the financial sector expect to retrench rather than employ this year as mergers between Caja’s gather pace and look to list. They require cost savings to make these attractive to investors and the bulk of this will come from efficiencies and economies of scale. The firms looking to shed jobs this year will not affect those at the beginning of their careers but will affect the 40 plus in a way perhaps not seen in Spain before.
The people who will be affected by companies cost cuttings are those with mortgages and this year we will see more of these types of cuts than previous ones.
Euribor rates which hit an all time low last year and have shielded mortgagees for the last 12 months with overall rates of anything as low as 1.5% have steadily risen. This month for reviews and new loans the 12 month Euribor is 2.08%. Even if the loan was secured at a very low margin above this year most mortgagees will be hit by a minimum 1% increase in their rate. For a mortgage of 100k on a 25 year term this equates to an extra € 376 per month the household will have to find. 12 Euribor rates are expected to continue to climb so by end of year mortgage reviews we could see increases as high as 2% or more to overall rate.
Spain has no control over these rate rises so has to live with a stagnant economy and rising household costs.
Given this environment it is difficult to see the Botin’s predictions of a stabilising arrears book and improving property prices actually be realistic this year.
Most pundit would predict 2011 will continue to see arrears rising and prices in some areas continuing to fall as banks make efforts to clear the vast numbers of surplus stock.