Spanish mortgage news with Barclays announcing cuts and a withdrawal from Spain

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Barclays UK today announced a number of cuts to its banking operations across its worldwide portfolio.Cuts in personal in the UK will total 19,000 to be shed by the end of 2016.

Barclays leaving Spain

Part of the overall cutbacks includes the shedding of its 250 branches in Spain. The Spanish retail banking operation will be moved to noncore activities and be placed in a bad Bank along with other divisions so it can be sold or liquated.

Barclays Spain has many nonresident Spanish mortgages on its books as it was one of the more prolific lenders during the boom times in Spain and were a first port of call for many UK borrowers buying in Spain who wanted the comfort of a known brand.

Why is Barclays Spain being shut

Barclays Spain has lost money for the last 4 years and it has been known within the market that the parent company has actively been seeking a buyer having run out of patience with the Spanish management team who have failed to turn around its trading and profits.

Barclays in the last few years has focused its mortgage facilities in Spain on the high net worth end of the market bringing into its criteria for lending minimum earning levels for the main applicant, of net € 5.000 equivalent per month, tightening debt to income ratios to 30% and bringing in minimum valuation levels.

Barclays also withdrew from the intermediary market last year only accepting direct applications from mortgage applicants who went into a branch.

Why has Barclays Spain failed to survive.

The writing has been on the wall for some time now. Barclays Spain suffered from inexperienced and gung-ho lending taken onto the mortgage book during the years of 2003 to 2007. The risk team within Barclays, with little experience of how UK paperwork worked and what checks could be made, threw themselves into the intermediary market without checking the quality and professionalism of the broker or indeed the honesty. Branch staff who were managed entirely on targets also had little experience or knowledge in the non resident market and were only incentivized on number of mortgage applications not quality.

Linking at that time to valuation Barclays took on many Spanish Mortgages where the loan granted exceeded the purchase price being paid. Often caught out by unscrupulous brokers Barclays also along, to be fair with other Spanish Banks, accepted fraudulent applications because they were incapable of recognizing what was factual information and what had been made up.

Barclays risk team preferred to see simple applications with P60, s and pay slips because these were easy to underwrite but missed the point that this is also paperwork that is easy to produce with many companies offering to sell applicants paperwork that can be used in a mortgage application.

Was Barclays Spanish team warned of the issues in the marketplace.

Despite being warned by companies like ours that this was happening the Management team failed to take action or educate Staff on how to spot fraudulent paperwork. A lack of understanding that for instance pay slips will never have exactly the same net income each month due to fluctuations, all be it slight on deductions taken, was just one of the problems. Barclays unlike other lenders also failed when looking at a mortgage application during the various stages to follow up on employer’s references or contracts to check their validity and at one point did not request credit files to check liabilities in the UK.

Barclays during the peak offered margins above Euribor at very low percentages and less than was necessary to be competitive in the non resident best buy tables, and also were one of the few who moved to 80% loan to value for non residents.

All these past mistakes have culminated in the situation they now find themselves. Some were avoidable but market conditions have also played their part.

What might happen to the division in Spain now

It will be interesting to see if any of the big 6 in Spain have an appetite to take on the branch network and or the existing mortgage book or whether finally the book will just be sold to an investment company like Fortress who bought the GMAC book and the branches just close in their entirety.

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