The Spanish national statistics office issued yesterday the loan data for November 2013.
Overview of the figures showed another month of declines
The data showed yet another drop in the amount of Spanish mortgages granted for dwellings and yet another month of net outflows and a reduction in overall mortgage book held across the banking industry.
What are the trends and can we read anything from Novembers Mortgage news
Firstly last year November and December were the best months for loan completions for both the year of 2012 and since the crisis in Spain began. This blip was due to an upsurge of completions in the last two months of 2012 as purchasers rushed to Notary to beat the end of the tax breaks that were in place. This included a reduced IVA at 4% which rose in January 2013 to 10% for new property and discounts on future capital gains for resales.
It is therefore not surprising that in the year of 2013, against 2012 November showed a year on year decline. It will be difficult to gauge the real market conditions until the first few months data for 2014 is available as the last two months of 2013 will be skewed by the unusually high level of completions from the previous year.
It should be expected that next month’s December figures will also show a year on decline in mortgage completions across Spain.
What are the most worrying aspects relating to Spanish loans
More worrying than the one month drop in isolation is that the Spanish Banks continue to shed more loans than they add. In November 2013 just over 13,000 mortgages were constituted for dwellings and 22,000 redeemed. This trend has been the same for over 3 years now. The reduction of the mortgage books has partly been by design and partly due to the overall liquidity situation of the Banks in Spain. Not only has the level of loans in Spain reduced but so has the number of lenders available.
On top of the pressures for the Banks themselves sales of property have reduced due to the lack of buyers in Spain because of the economic crisis both internally in Spain and Europe wide.
Spain itself has also suffered as non residents buying in Spain have been put off by the well publicized legal issues that happened during boom years and a concern that Spain would have to leave the Euro.
These concerns are now diminishing as buyers have realized Spain will not leave the Euro, property prices may well be near the bottom of the curve and that tightened laws more transparent legal advice for buyers is now the name of the game.
Is there any positive news for mortgage lending in Spain
Whilst the figures do not yet reflect it the positives are that finally the Spanish Banks seem to be moving again. A realization of the long term affect on future earnings of reduced lending is finally hitting home. Not only when a mortgage redeems in Spain does the bank lose the interest payments but also at risk are associated products like bank accounts, life cover and other insurances which get cancelled at the same time.
Some of the net outflows are, of course due to defaulted loans and in this area the figures remain high and continue to climb each month although there are some indications that defaults are leveling out. This said by far the biggest contributor to the drop in mortgage book is due to mortgages being naturally redeemed.
The last few weeks have seen all Banks announce large mortgage targets for 2014. Little has been done to enhance product at this point but this may well change as the year progresses if targets are not met.
Are the Spanish Banks willing to negotiate on pricing
For the right clients including those who are nonresident in Spain the Banks are now willing to look at special rates and negotiate on terms this is something we have not seen for many years.
What constitutes a good client in the eyes of the Spanish Banks.
Spanish Banks consider a good mortgage application to be one from someone who is putting in significant amounts of their own money, preferably employed rather than self employed someone who has low debt to income ratios and someone who does not already own a number of properties.
For self employed applicants as long as the incomes are declared on a personal tax return and not just kept as retained profits they may also be considered a client who could expect a reduction in the rate.
Clients who will have the most difficulty in getting any special terms, or indeed a mortgage at the level they require will be those requiring the full 70% that is currently possible, those who own other properties and those who have sound and robust accounts but do not draw the full income available to them.