Yesterday saw the announcement of a € 30bn rescue package from the Europe for injection directly into the Spanish Banks. As part of the negotiations The Spanish Government has agreed to hand over regulatory powers from the Bank of Spain to the European Central Bank.
It is difficult to argue that the supervisory powers should be passed to another body and that an outside body monitors the continuing performance of those receiving the benefit. One of the questions is how all of this will affect the day to day implementation of residential mortgage lending in Spain. Mortgage advice in Spain is currently unregulated. Any business or individual can offer mortgage advice immaterial of their knowledge or experience in the marketplace and without any form of qualification.
There is little consumer protection and how Banks themselves sell mortgage product and how the process of mortgage lending is implemented. This process leaves a lot to be desired with many practices not allowed in other parts of Europe, like the adding of compulsory, and possibly unnecessary linked products being standard Bank practice in Spain. Banks have little in the way of clear and concise products information at application often incurring costs for an applicant before confirming even basic information like rates and terms.
Historically the issues now facing the Banks relate to development funding rather than the wider residential market and many of the processes for residential lending have now been tightened including the removal of lending solely against valuation. It is likely however that the news of the bailout will increase the difficulty of being granted a mortgage at least in the short term.
It can be expected that in the medium term mortgage advice will become regulated and some form of qualification required. This should be a step in the right direction as long as it is implemented in a way that prevents those not running professional businesses from giving advice, without putting out of business those that do.
For starters regulators should look at all the practices implemented by the Banks rather than the few third parties that exist, as it is within the branch networks of Banks that worst is seen in terms of lack of transparency, poor advice. This needs to be balanced with an understanding that if you make it too difficult to lend it becomes easier and more palatable for a Bank to reject applications than risk approving them.