Spanish Banks who traditionally offer Spanish mortgages on a variable trackers and complete on only a small percentage of fixed rates, may be about to buck the historical trend.
Fixed rate mortgages in Spain have in the past been at much higher rates than the underlying variable and difficult to apply for.
Issues with fixed rates in Spain
The mortgage application process for fixed rates in Spain is not the same as in other countries. In for instance the UK an applicant can pay an admin fee to secure during the application process their portion of the fixed rate offering so that if the offering was removed for new applications existing applicants still had access to the funds.
In Spain the issue with applying for a fixed rate is you cannot secure during application the process the rate you are applying for. This means and usually meant that by the time the application was processed a different rate was applicable for offer and completion. During the last few years of rate uncertainty and fluctuating cost of funds it was more than often the case that the fixed rate had risen from application to offer and was no longer competitive against the variable rate. This uncertainty at application stage has kept fixed rate completions to no more than 6% to 7% of all mortgage completions each month.
Add to the uncertainty of what you might be finally be offered, the lack of competitive product and the fact that the antiquated systems of the Spanish banks meant an application approved on a fixed rate could not be just swapped to a variable rate but had to be fully underwritten again and it is of no surprise fixed rates are not the favored choice.
What other points should be considered when looking at fixed rate options in Spain
The other key consideration mortgage applicants had to make when applying for a fixed rate was early repayments are very high in comparison to those in place for a variable rate. By law on a variable tracker the maximum penalty for early full or partial payments is 0.50% in first 5 years and 0.25% in subsequent years. For fixed rates added to this can be a further sum from 2.5% to 4%.
In the event of early repayment the Banks will make an assessment of their loss and will then charge up to a further 4%.It is neither clear nor concise at the outset and inception of the mortgage what you will be charged if you redeem early and neither it is clear on what basis the Bank will assess its loss. For this reason it is best to assume the maximum will be charged and that anything under the maximum is considered a bonus.
So given the issues why look at fixed rates in Spain
Whilst because until now fixed rates have been very uncompetitive and only suitable for applicants who have an overwhelming need for certainty of monthly payments the new rates issued by one Bank today are so competitive they should be considered along with other mortgage product types by all clients buying in Spain who require a loan to complete.
The caveats to this advice being, be prepared for the rate not to be available at the point of offer and completion and understand this means the application process will need to be undertaken fully again if you want to swap back to a variable loan. Only apply if you know you have a comfortable timescale to complete and can afford to resubmit an application again.
Be prepared to accept a higher bank completion fee and higher redemption penalties without clear indication of what exactly that redemption penalty might work out at; other than it will not exceed 4.5% in the first 5 years and 4.25% thereafter.
Fixed rate best buys nonresident loans in Spain
Up to 70% loan to value
15 years- 4.2%
20 years -4.45%
25 years- 4.60%