A few weeks after withdrawing all lending facilities to anyone who earned their money outside the Euro Deutsche bank Spain has launched a new nonresident product aimed at Swiss, Norwegians and Danish clients.
The withdrawal from nonresident lending appeared to be a knee jerk reaction to a spate of repossessions mainly from UK mortgage holders. It is believed around 80% of their arrears in the nonresident book related to UK residents. The withdrawal of lending facilities was a direct instruction to the Spanish division from the German parent.
The current repossessions going through the courts however relate to non payments of loans going back some two to three years as it takes this long to get a client to court. This means the action taken of recent may be a little “stable door and horse already bolted”.
It is not known or been made clear if the arrears situation on current mortgages reflects the same statistics or whether the decision not to lend to Brits has also been impacted on by the loss of triple A rating, and ongoing concerns about the British economy.
The key rationale given for withdrawing Spanish Mortgage facilities was around the fact that people earning outside of Euros were constantly exposed to exchange fluctuations and that most people in arrears blamed this fluctuation for their inability to maintain payments.
If DB feels that exchange rate fluctuations are the key factor for arrears and the exchange rate exposure is a risk then to launch what is effectively a currency mortgage seems absurd.
Borrowers from the three countries who can now earn their money outside of Euros will be granted the mortgage in the currency in which they earn. For completion the loan will need to be transferred to Euros. This gives a one off exposure to exchange rates.
Ongoing the mortgage will paid in the currency of the earnings. All of this is fine until you sell. If when you sell the Euro rate has altered significantly against the currency in which the loan is held then when the mortgagee goes to pay the loan back they may find themselves unable to cover the loan from the proceeds. Of course it could swing the other way meaning the Euro sale pays off the loan in the original currency with loads of money to spare but currency loans remain risky business which is why most lenders have withdrawn from them.
Looking in more detail at the product DB have on offer for Norwegian and Danish borrowers NY Kredit remains a much better option. Whilst fluctuations on Danish Mortgage bonds may expose the borrower to some risks the overall rate and terms offered wipe the floor with anything DB have on the table.
DB is offering 2.75% above the interbank offered rate of the relevant currency this being either Norwegian Krona or Danish Krona or Swiss Franc at 50% loan to value.
Ny Kredit offers Scandinavians 1.2% above the 3 month Euribor at up to 70% lending.