Spanish Mortgages what next for 2014
2013 was one of the worst years for mortgages in Spain since the crisis began.Mortgages granted hit an all time low and the net mortgage book of lenders contracted during the year.
Margins above Euribor increased significantly and a few lenders withdrew from lending completely.Lenders retracted back to providing only purchase loans for buying in Spain, with lenders withdrawing from re-mortgaging and equity release almost entirely.
So will 2014 be any better.
Anecdotally rather than specifically it is expected that the Banks in Spain will start to tentatively put their toes back into the water again in 2014. It is difficult although not impossible to imagine another year where Banks in Spain continue to shrink their customer base.
There was of course due to the boom years a massive adjustment required as many small under capitalized Banks granted extensive levels of lending that were beyond their capacity.
There remains still a mismatch between the level of deposits the Spanish Banks have on their books and the level of mortgages. In Spain lending still outstrips deposits which is not the case in other countries like the USA. Despite this it will become necessary for the ongoing health and growth of the Banks in Spain for them to start lending again.
What will happen when Banks in Spain start to lend.
At present rates are very high in Spain and some of the highest in Europe. As Banks look to lend we may slowly see competition creep back in again as Banks fight to gain market share. This process will be very slow as cost of funds and provisioning costs for the Banks in Spain will limit the level to which a Bank can drop its margins.
For some Banks the loss of minimum floor rates on both new and existing mortgages will also impair their ability to lend in a profitable manner and this may take more than the whole of 2014 to work itself through the system.
Bad Banks and defaults
The ability of many Banks to lend will work in tangent with capital buffers and the Banks desire and ability to pass defaulted mortgages to SAREB. SAREB is the bad bank created by the Spanish government to take over toxic loans and unsold property stock allowing Banks to remove these from their balance sheets and ease liquidity.
Many of the Banks which were moved into FROB the fund set up by the government to take over Bankrupt Banks have now either been fully or partially sold on. Many Banks that did not need to be moved into FROB but needed to raise further funds have during 2013 raised capital by way of share options and sale of existing assets along with investment from third parties.
During 2013 many of the larger banks in Spain sought investment from other Banks or private individuals outside of Spain. South American banks in the main were the key investors. In a complete reversal of fortunes South American banks who are seeing a slowdown in their own countries are actively looking to invest in Spanish Banks. The reverse was true some years ago where Spanish Banks invested in South American ones.
Many of the Banks who have invested in Spain are run by second generation South Americans whose parents originated from Spain. Having a foothold in Spain is more than an emotional investment for these CEO,s as it also gives them an access to the general European market and access to a market that they hope has its worst days behind it.
It will be interesting to see if the new owners or part owners look to expand in 2014 rather than continue the contraction which has happened in the last few years.
What are loan to values and rates like in Spain currently.
The gap between what a resident and a non resident gets offered has narrowed over the last few years.
Standard loan to values for fiscal residents of Spain are 80% and maximum loan to values for non residents are 70%. This is for private purchases, the Banks will still consider offering higher loan to values and possibly better rates where a client is buying something the bank owns.
Rates remain variable trackers predominately tracking the 12 month Euribor. For residents of Spain these can start as low as 2.5% but for residents the lowest is 3% above Euribor with the general market being between 4% to 5% above.
The Sabadell Group remain one of the most active lenders but lenders like La Caixa, Bankinter and the BBK group are all indicating they intend to have mortgage budgets in 2014 and have either come back into the market or adjusted product offerings to encourage new business.
Criteria’s remain tight and inflexible and how each underwriter assesses an application is still volatile. It is very difficult to second guess how each application will be treated even where it appears on the surface to meet the normal requirements of the Bank.
It remains, and will remain the case for 2014 that a buyer in Spain should ensure their Spanish mortgage facilities are granted in principle before making any financial commitment to a property.
A buyer with an approved mortgage will find their ability to negotiate on price is enhanced in comparison to a buyer who needs finance and does not have the loan approved.