Background to lending completions in Spain
After 5 years of zero lending targets and a desire to reduce their overall book, in 2014 the Banks opened the doors again and most have in place large lending targets for this year.
The Spanish Banks have become progressively more competitive as the year has moved on, lowering margins and improving product terms along with a handful starting to increase loan to values on private sales.
None of the activities the Banks have undertaken are as yet being reflected in the level of mortgages they are completing on. Mortgage lending in Spain, off the back of a very poor year for completions in 2013, remain below 2013 figures in all but a very few pockets of Spain.
Why Spanish Banks need to grow their lending books
New financing is important to the Banks for future earnings, and whilst the profit impact may not be felt immediately a continuing drop in finances approved will start to hit the bottom line hard unless this trend can be reversed.
The size of the lending book has an impact on the percentage of loans in default as well as affecting earnings on interest paid and auxiliary products. After 5 years of net outflows it is time for a rebuilding of loan books but the Banks are finding out that just opening the doors again to new loans is not enough to encourage borrowers in through the doors.
What is preventing an increase in mortgages in Spain
Part of the issue seems to be that after years of very difficult conditions, high rates and almost impossible risk assessments many people in Spain and nonresident buyers of property in Spain believe that getting a loan will not be impossible.
This is in fact far from the truth and whilst a sensible level of cautious risk assessment remains there is now more flexibility in the market, a desire to look for reasons to lend and wider range of products available. This is particularly true in the nonresident market with new best buys being launched in the last few days.
In the last few weeks in Spain, one major Bank has brought back in pricing at levels not seen for many years for all purchases above € 250k, and another lender has launched a 70% product for non tax payers in Spain having dropped to 60% during the crisis.
The key issue for the Banks is twofold.
Firstly they are still wary of larger loans and more financially complex individuals losing on many occasions very good applicants because of an inability to properly underwrite being more focused on ticking boxes than looking to see the true value of the application.
Secondly the adding of unnecessary compulsory products, which is a complete no no, in other countries prevents some clients who can pay cash from gearing the purchase almost as a point of principal.
The pitfalls of making direct bank applications
On the other side of the equation because the banks are promoting themselves aggressively more and more applicants are approaching banks direct. On the face of it this might seem a win win for both sides Bank and applicant, the reality is that without expert packaging of a mortgage application and a good understanding of how the finances of an individual from another country works, perfectly good applications are being rejected due to misunderstandings or lack of understanding of the true fiscal situation.
As mortgage advisers we have seen a significant upturn on the amount of clients coming to us no longer able to access the best possible products because they have made an application direct with the Bank and it has been rejected. If in fact it was properly and expertly submitted the loan should have been approved. In Spain once you have been rejected by a Bank there is no going back so a different lender and terms must be found.
May 2104 figures for Spain
New finance constituted for May on dwellings stood at 17,963. This is down 3.4% in comparison to May last year and for the full year accumulated number of new loans granted is now down 18.6% on 2013 figures.
The numbers in May were up from the month of April, as was capital lent, but this is a normal part of the yearly cycle and too soon to say if this is a turning point for the year.
Average loan size dropped in the month of May as did the average interest rate at which mortgages completed which was 3.82% some 12.6% lower than rates in the corresponding month of last year.
Redemptions totaled 23,045 for dwellings meaning the Banks saw yet another month of net outflows.