Bank of Spain quarterly survey
The Bank of Spain has issued its quarterly report on Bank lending. For Q4 2109. The data for Bank lending in Spain is open to question. Is compiled not from statistics but from a questionnaire sent to participating lenders.
Given the lenders may wish to politically skew some of their answers. It is difficult to ascertain what is factual versus heresay.
What is true is that demand for mortgages in Spain to buy a residential property fell during the quarter.
The demand for loans in Spain showed the biggest decline since 2013.
Rationale for drop in demand
Spanish lenders have told the Bank of Spain. market decreases are not due to regulatory and supervision changes. To do so would have been admitting to their lack of preparation for the changes. Implemented in June of 2019.
Overall demand does seem to have stalled. Put down to a number of factors. Including a decrease in non resident applications due to Brexit. Also concerns over the economic stability and continuing growth of Spain.
The Spanish Banks anticipate demand will continue to decline for the foreseeable future.
Whilst this may be the case at IMS we have seen an upturn in new enquiries from UK residents since the UK election.
Whilst enquiries are up, quality of these enquiries is down.
Quality of Spanish loan applications
Many borrowers are looking for equity release. This is not something that can be gained as a non resident of Spain. Unless the funds are to be for improvements. Or to partially assist in buying another property in Spain.
Adjustments last year were made by the lenders. Making it much more difficult for a non resident to gain the full 70% loan to value. Unless they earn their incomes in Euros. For UK applicants many lenders have tightened debt to income ratios. Reducing them from the normal 35% to 30% or less.
The rationale for this is a concern over what will happen to the pound. Any drop in the currency increases the actual cost for the borrower. Plus a concern as to what will happen to the UK economy once it is outside of Europe. Without knowledge of how future trade deals, or not, will look. And its subsequent impact on UK growth. Employment and Company owners.
Non of this is going to change. Until the situation has settled down. The picture is clear. The UK has demonstrated that at worst Brexit has had a neutral impact. It may therefore be some years before lenders go back to offering 70% as standard.
Loan to values under pressure
A handful of lenders remain open to 70% loan to value. However very much on a case by case basis. The application needs to be vanilla, in terms of the borrowers overall exposure to borrowings. Capital borrowed and level of outgoings versus net incomes.
For non residents outside the UK the changes to regulation for non euro earning applicants remains the same. With many lenders withdrawing fixed rates. Also no longer offering any facilities to certain categories of borrowers.
Alterations to risk criterias have not been the same across the board. Some of this may change as 2020 progresses. Due to decreasing demand. Lenders could re-assess their approach. On basis not all lenders have taken such drastic action.
Interest rates
Interest rates remain low. Where long term fixes can be gained they continue to look very good value for money.
The 12 month Euribor has seen very marginal increases for the last 4 months. But still remain in negative territory. The Banks report access to funds has remained stable. In many instances funds have not been required due to a drop in demand.
Brokers in Spain provide access to total market
The market remains challenging. With a continuing decrease of access to independent brokers. Those who can access the whole market for applicants. This is due to an inability to meet new supervisory requirements. Because of this for some borrowers pot luck of a mortgage application in terms of a direct application. Depends on the risk criteria of that particular lender.
Many applicants have been rejected. Led to believe that this would be the case with all lenders. Knowledge of what can and cant be done with each lender. Tailoring an application on this basis, is now a big part of the role a broker would play. And is even more crucial than just looking at rate.