Spanish Banks increase lending in July

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Data issued today by the INE statistical office in Spain show a second month of year on year increases in numbers of Spanish Mortgages constituted.

Completions for the month, when looking at number of loans for dwellings, was up 28% on the same month of the previous year the best monthly increase seen since the banking crisis began back in 2008. Total numbers of loans completed for dwellings was 18,107 up from the previous month of June by 5.7% reversing the previous yearly trend of a continuing decline in numbers granted.

Average loan sizes

Total average lending amount in Spain fell by 4.2% when compared to July 2013 possibly reflecting the continuing, whilst stabilizing drop in overall property prices. When other properties bought are extracted from the average loan amount data and only residential homes assessed the average loan size held up much better at €100.866 showing a small decrease from July last year of 0.3%. This coincides with a general view that the price drop for residential homes has bottomed out.

Regional variations in Spain

By Region the highest number of loans completed were in Andalucía and Madrid with both regions also showing significant percentage increases when compared to last year.

Interestingly in last few weeks at IMS we have received a number of new applications from non residents wishing to purchase in Madrid. Whilst other major Cities like Valencia and Barcelona have always had good levels of nonresident applicants, in the last 12 years at IMS we only had 1 other application complete in Madrid even during the boom years. Most of the recent applicants are coming from outside Europe and it appears that buyers based on the American continent are favoring the Capital City over the more traditional nonresident areas.

Castilla was the only region of any significance to show a decrease year on year when looking at mortgage numbers.

The picture across the regions is slightly different when looking at capital lent. The most unusual of these was the Balearics which whilst showing a small percentage increase in numbers of loans showed a decrease year on year for capital lent of 15.4%.

Spanish completions current and past trends

Of total lending 57.25% was grated against residential dwellings. For the first year in 5 years the number of mortgages in Spain completed in July was up when compared with June of the same of year. Since 2010 July has always shown a decrease in comparison to July.

The same trend applies to capital loaned for dwellings which was up 8.1% when compared to June 2014.

Spanish Interest rates

In line with the normal market conditions relating to Spanish mortgages 93.8% of all loans completed on a variable rate basis with only 6.2% completing on a fixed rate. Whilst the market has more fixed rates available the problems associated with fixed rates, which include not knowing what rate will be offered until an application has been fully approved, and much higher redemption penalties continue to push applicants towards variable trackers. Whilst some good long term best buy fixed rates are available with the 12 month Euribor being so low and the ECB base rate at 0.15% most applicants are clearly favoring taking their chances on the variable rate in the belief it will be many years before the variable rate catches up with the best of the fixed rate offerings.

The average interest rate being charged was 3.90% which is 7.7% less than the same month if the previous year. This decrease is affected by two factors, one the 12 month Euribor is lower than a year ago and two, with new mortgage targets in place during 2014 Spanish banks have started to adjust and drop interest rate margins above Euribor as competition for new loans increases.

Is all the news good

Subrogation either by movement of the loan to a new bank or to a new holder of the loan continued to be low in numbers but showed some small increases in the month of July.

The key downside to July’s lending figures was that mortgages being cancelled continued to outstrip by quite someway the amount of new loans constituted. Despite the increase in July of numbers of loans in Spain more than 24,000 loans were canceled giving the Spanish banks yet another month of net outflows and a continuing reduction of their overall mortgage book by some 6,000 loans. For future earnings, given how much the mortgage books have shrunk in the last 6 years, and to help improve the overall default percentage the Spanish Banks need to get to a point where the lending books start to grow again but this still seems to be some months away.

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