July lending figures
Julys loan data in Spain showed a slowdown from June 2017 but a large increase in activity from the same month of the previous year.
The number of new Spanish loans signed for the purpose of residential property rose by 32.9% over last year but was down 15.8% on Junes figures.
In total 24,863 new loans were taken in the month.
The average loan size rose above last month and last year reaching € 119.613. This was up 2.6% on June and 3.8% on July of last year.
The impact of the higher loan size meant that in terms of capital lent the decrease over June was lower at minus 13.6% and the increase over last year was higher at 38%.
In total 2.973.928 million was lent.
The interannual levels accumulated show a reasonable year on year increase in all areas both numbers and capital lent with the number of new Mortgages in Spain totaling 1.8% up and capital lent being 17.6% up.
Money lent by Spanish lenders for dwellings totaled 63.4% of all new credit flowing into the system which is back to normal levels after a blip in May.
Whilst the numbers over last year appear to be very healthy within the month when assessing a month on month basis last year July was down by 26.2% on Junes lending figures in a month when historically the levels increase in July. This means it is the second year that Julys lending has been below Junes.
This may be because of a shift in normal house buying trends where historically everyone has tries to complete in July to beat the August downturn in production.
In the last few years we have seen a change in the working patterns of those involved in house purchases so very few Lawyer offices now close for the whole of the August this has allowed for completions to happen more smoothly and may have taken some pressure off the month of July.
The average interest rate dropped in July from 2.79% to 2.76%. Whilst very marginal the trend downwards has now been the case for over 12 months.
The average loan term was 24 years and fixed rates as a mortgage product type bounced back up a bit in the month constituting over 38% of all completions.
The average fixed rate came in at 3.12% which was 12.8% lower than the average fixed rate of last year.
Loan activity levels high in Coastal regions
Regionally only Navarra and Cantabria are performing as a percentage below last years levels but both are very small markets with very small numbers so a marginal shift in activity can have a large percentage deficit.
All coastal regions are showing much better performance levels than last year. Andalucia is 43.8% on capital lent and 35.3% in numbers of. The Canary Islands have an increase of 50.4% on capital lent and 22.9% in numbers of.
Madrid the capital city has also performed well due to the recovering economy.
The challenges facing the Spanish lenders
Despite all the positive news the Spanish Banks are still missing their lending targets.
Competition between lenders even in the non resident arena remains fierce.
The key issue for Spanish Banks is that instead of lowering their published rates the lenders look to just allow some flexibility at branch or risk teams level to save applications that may go elsewhere or in an effort to capture business that is with multiple lenders.
This has a double affect in some instances the lenders are losing good business or cutting their margins to the bone without any real control on the margin, and on the other hand borrowers may actually be paying an interest rate that is higher than they could of negotiated because they do not understand how far the Bank can be pushed.
Many lenders had mid sale offers in the months of June, July and August offering for all applications that completed within those months rates that were below those published. This is rather unusual activity for financial institutions and smacks of desperation.
In a very un-flexible market the lenders in Spain may be better off looking at what is the right rate versus risk balance. Making the mortgage application process more fluid and looking at offering deals that are right for the client in the medium and long term. New product development could go a long way to resolving long term issues.
Slightly higher margins and no compulsory products for those mortgage applications where the applicant does not require it and a higher level of transparency could differentiate more effectively one lender from another.
Loan books lower in July
To enforce the challenge faced by the Banks in Spain in July 25,13 loans were redeemed or cancelled so there was a net outflow yet again after a couple of months of new loans exceeding by a small amount those being lost.
Changes still need to happen in the lending market just hoping for new business does not cut it, but the recent speech by the Governor of the Bank of Spain highlights why the Banks are loathe to push forward too quickly given the issues of the past.