Is a sustained recovery on its way in Spain
Data for 2015 suggests that we are now seeing some continuity in the recovery of the housing market and mortgages in Spain.
Across the board the statistics to date show that more homes are selling and more mortgages are being granted. The only area still under pressure appears to be prices.
The two key reports covering these areas each month come from the INE and the Notary offices. Whilst published within the same month the data is not as detailed from the Notary office but is reporting on sales and mortgages within the actual month whereas the INE whilst more detailed in its reporting scope, is reporting on house sales and Spanish mortgages registered at land registry within the month rather than completion. As the registration process can take two to three months the information is not live time.
August Notary statistics
In august actual house sales, as completed at Notary, increased by 7.3% on the same month of the previous year. Prices fell to an average of € 1.127 per meter square a drop from the previous month of 3.4% bringing the total decline in house prices since 2007 to 40.3%.
New mortgages signed at Notary were up 19% totaling 8,162 new contracts but the average loan amount fell by 1.1% to € 108.730.
The total number of homes bought with a mortgage was 42.8% which is a relatively low percentage when considering other European countries.
August INE figures
In contrast the INE figures for August, showed total home loans at 19,272 up 25.8% on the same month of the previous year and an average loan size of € 104.318, a small increase of 0.6%.
Capital lent topped just over 2.010 million up 26.5% on the same month of previous year but down 11.9% on the previous month of July. Numbers of loans dropped by 11.9%.
The decrease in both numbers and capital lent for August, when looking at them against July, is in line with normal trends over the last 5 years but one might have expected to see these trends starting to be bucked if the growth in Spanish mortgages and house sales are going to start filling the void left by 7 or 8 years of massive declines.
Mortgage types and average interest rates
89.2% of all mortgages in Spain completed on a variable rate. This is a small but subtle shift as normally the variable rate product completions are over 90% and it has been normal in Spain for more than 93% to 94% to complete on a variable rate. Improved access from the Spanish Banks to best buy reasonable fixed rate products, and a general desire by applicants to gain stability in the longer term in case rates rise seem to be having an effect on product selection.
The average interest rate by which all lending in Spain completed in August was 3.24% and 3.25% for loans linked to residential homes. This suggests the banks are focusing, as requested on lowering rates for commercial lending. The rate for Spanish mortgages is however down 13.4% on the previous year mainly due to a continuing decrease in the Euribor.
Regionally the area’s most attractive to International buyers looking to purchase and own a home in Spain are performing the best.
With the average increase in numbers of loans granted being 25.8%, Andalucía, Canaries, and Valencia all performed well above the average. Only the Balearics, off the back of a better than average previous year, and a very buoyant start to 2015 was down on the month. Despite this the Balearics remains up annually by 59.2%.
The gap between mortgages cancelled and redeemed fell to its lowest level for some years with 21,762 loans redeemed and 19,272 new loans constituted. Whilst the gap narrowed it was yet another consecutive month of net outflows in Spain.
This outflow was highlighted in the Spanish Banks reporting for the first 9 months of 2015, and share performance of the major players across the year. With analysts still concerned about future earnings due to net incomes coming under further pressure for all lenders, share prices have dipped.
Caixa Bank and Banco Popular have seen share prices drop by double digits and Santander the largest of the Spanish Banks have seen share prices drop by 28%.
The challenges for the Spanish Banks
The key reason for the analysts concerns are due to low interest rates and the difference between the loan interest being charged and the deposit money loan interest being paid which has narrowed.
The Euribor at its current low of 0’.154% from its high of 5.39% in 2008 is putting pressure on yields. Bankinter for instance saw a drop of 2% in the third quarter on net income from the quarter before. This squeeze on net interest is unlikely to alleviate as the Banks compete with each other for loan volume. Spreads are being pushed down and already this year they have declined from 2.6% to 2%.
Non performing loans
Sabadell who has recently bought the TSB in the UK from Lloyds saw a drop in their non performing loan percentage down to 8.51% from 9.01% last year. Net income rose by 59.4% on the same period of the previous year. All banks reporting to date are showing a decrease in nonperforming loans which is the one highlight in an increasingly difficult market.
It is widely expected the class action on floor clauses will be won by the claimants the elimination of floor clauses will put further pressure on earnings for many of the Banks and only productivity and cost cutting along with another round of mergers can perhaps save the situation form worsening.
Overall credit in the system continues to decline despite loans being granted and Spanish banks being far more aggressive on price. There remain some real challenges for the Banks during 2016 before we can say that the housing and mortgage market in Spain has truly turned the corner.