Data to the end of September showed Spanish house sales, and therefore mortgage completions Spain have fallen during the year.
Purchases of homes is down 23% year on year. This has impacted on lending by Spanish Banks.
Factors affecting Mortgage completions Spain
A number of factors has affected the market. For instance visa requirements and limitations for UK nationals post Brexit, has dampened non resident Spanish mortgage business. The same thing has happened in France. Only being able to visit your property for 3 months in any given year is reducing new buyers, considering a holiday home.
France has announced they are reviewing the Visa limitations for UK nationals who own and buy homes in France. Making it easier for a property owner to visit their property. Also extending the time they can stay.
Whilst France seem further down the line to making changes, Spain should follow. Already in the Spanish press it is being discussed. To not lose out on second home owners to France Spain will need to adapt.
Higher Interest Rates
Interest rates and economic uncertainty has also affected the purchase and lending market. On top of the Euribor rising significantly, making variable rates high. Access to fixed rates for non euro earning applicants has diminished. This was due to regulation changes in 2019. A regulation designed to protect applicants has opposite affect.
Non euro earning Spanish mortgage applicants can now request that their loan gets moved to the currency of their earnings. In the instance that exchange rates fluctuate by more than 20%. Whilst ,because exchange rates are by their very nature volatile. It is unlikely an applicant would look to change the currency.
This is because the loan capital must be transferred, and the monthly payments. However if the property is sold, the buyer is going to pay in Euros. Many second home owners do not expect to hold the property for life.
It would be a big risk to change the currency based on a one off event. If rates move back the other way you may owe more than you initially borrowed. Or be unable to pay back what is owed from the funds of a sale.
However Spanish lenders assume a mortgage applicant in Spain may make the request. At some point in the future. However remote that possibility is.
Fixed rate accessibilty
For variable rate and most currencies, Spanish banks could deal with the situation. However where funds have been bought to service a fixed rate, lenders could find themselves with a significant loss. To avoid this possibility some lenders will no longer offer fixed rates.
Despite long term and full term fixed rates remaining reasonable. Many borrowers would have no choice but to take a fixed rate at this present time. At IMS we can still obtain a fixed rate for quality applications. This will be subject to loan size and loan to value, affordability ratios, and overall earning levels of the client.
Cost of living issues putting buyers off
Other World issues like Ukraine and Palestine are having an affect. On how confident people feel. Plus impact of sanctions on cost of fuel and inflation are playing their part in a subdued market.
Many potential Spanish borrowers are just delaying their decision. Looking to see what 2024 brings.
Intertest rates in Spain, appear to have stabilised. We can expect rates to start dropping in 2024. Same with improvements to Visa requirements and limitations.
Will 2024 mortgage completions Spain improve
Due to lack of buyers more and more reductions are being made by sellers. This should also help kickstart the market.
Already we see more people attracted to promotional terms, being offered by developers of new homes.
We expect the loan market in Spain to remain difficult for the first half of 2024. Improving significantly in the second half.
September 2023 data
The average loan size in September edged up over August. At 143.186 this was an increase of 3.6%. Over same month of last year Spanish mortgage sizes is down very marginally. Year to date a more significant reduction of 1.7%.
Capital lent was 4.446.502 in the month. Plus 13,56% on last month. Down 29.7% over same month last year. Reduction of 18.6% annually to date.
The number of new Spanish loans completed was 31.054. An increase of 9.6% over August. Down 29.6% over September of 2022. Also down annually 17.2%.
In total 61.8% of all new credit was for the purpose of buying a home. This is a reduction from earlier in the year.
Interest rates based on a 24 year term have increased by 1.26% over same month of last year. In reality it is more than that. Euribor is currently 4.169%. Non resident applicants can expect currently to pay 1.5% above this.
43.8% of all new loans completed on a variable rate. 56.2% on a fixed rate basis.
Regionally Madrid, Canary Islands, Cataluña and Murcia have been hardest hit. When considering overall lending levels.
Spanish Banks mortgage books reduce
In the month 31.178 Spanish mortgages were cancelled or redeemed. This was more than the new loans added by Spanish Banks. However the margin of difference was reduced from the last few previous months.