Spanish home loans
Since 2014 Spanish Banks have been back in the game of credit. This process has gathered steam during the latter part of 2014 and into 2015.
Rather than looking at their product portfolio as a total and deciding on pricing matched to criteria and offering a range of products flexible enough to suit each client, taking into account the quality and the profit for the Banks in Spain, the Spanish lenders have decided instead to go into war with each other.
Standard pricing in most Banks in Spain remains high but all branch staff have been told do not lose an application on pricing.
Why a pricing war may not be good for all applicants
Whilst on the surface the practice of negotiating on pricing in Spain may seem like a good thing for the consumer in fact the reverse is true for most clients undertaking the application process. If you go into a Bank branch that is online for targets you may only get offered the high standard pricing and if the question about rate is not asked the branch may look to get the highest rate possible rather than offering automatically the best possible rate.
In some circumstances only if the bank thinks it is in competition with another lender will an applicant know how far the lender could be pushed on terms and conditions?
Branches who are behind on targets may offer initially to clients rates that their risk team finally will not offer which may mean applicants undergo the full application process before being sure what they think they are going to be offered is in fact what finally happens.
Impact on the Banks in Spain
For the Banks themselves, based on the understanding and quality of their branch staff, the profitability of lending may be driven by panic on targets, mistakenly believing they are in competition with another Bank or risk losing perfectly good applications due to lack of commerciality. Profit margins are in danger of being eroded.
To secure a mortgage Banks may now offer to waive bank account fees, remove compulsory products and negotiate on rates. There is nothing wrong with being willing to do this but Banks only seem to want to do it when in competition with another lender.
The control on lending now looks akin to an auction and it is difficult to see how in the long term this way of working can be good for mortgage applicants and Banks alike.
A more professional and commercial way forward
A much better way forward would be for the Banks to launch a range of products for those buying in Spain that take into account all aspects of lending. This would include flexibility and more sophisticated products for the top end clients along with sharp pricing and flexible and competitive rates for all applicants. The product portfolio should take into account the risk factors for Banks based on historic experience of client behaviors and loan to values etc and be priced accordingly.
Transparency so long missing from the Spanish mortgage market is now going backwards and in the 21st century with high quality underwriting tools, credit scoring and experience on back books it should not be beyond the Spanish Banks to behave in a professional consumer friendly manner instead of acting like market traders.