Non resident and resident mortgage market performance in Spain, first half of 2014
Spanish Banks will have got to the half year end well behind on completion targets in both the resident and the non resident mortgage market.
The residential property market remains depressed except in the area of non resident property purchases and net outflows of mortgages exceed new loans constituted every month.
Yesterday data published in Spain from the Bank of Spain and the INE statistical office showed that both mortgages in arrears and repossessions in Spain continue to increase despite the economy appearing to slowly improve. This is a natural part of the cycle as arrears and repossessions will always be behind the economic curve.
Where these pressures are most profound is when the mortgage book is shrinking, one of the quickest and best ways of reducing your default ratio as a bank is to increase the numbers of performing loans you have. Whilst the Banks in Spain are eager and active in the lending market this is slow to come through to tangible numbers of new loans.
What is holding back the Spanish mortgage market
Part of the issue remains the unclear and archaic way in which a number of Banks work. Many have no standard offerings but choose to provide terms on a case by case basis based on the total relationship held with the Bank and the client profile. Whilst the tailoring of rate to specific clients has some benefits this tends to be for the few leaving the masses unsure of what they will get offered before an application is made and a valuation paid for and finding themselves tied into numerous compulsory products to get a half way decent loan.
Most Banks in Spain have not as yet signed up to or understood the requirement of an applicant to be personally, financially approved, before making a commitment to a particular property. Given the Spanish purchase process requires moneys are passed to a seller early on the process this inability to be personally approved by a wide range of Banks will hold some buyers back from making offers and is a process very alien to most non resident mortgage applicants.
A few Banks do now offer to financially approve an individual subject to valuation of a property and this is more in line with the kind of service a client wanting to take a loan will require.
Improvements to the Spanish loan application process
Where we have seen recent improvements in the overall process of mortgage application is the introduction last year of the FIPRE. The FIPRE is a document now required by Law that must be given to the applicant at offer stage and before completion at Notary. In the FIPRE all the terms to which you will be tied into by way of signing the mortgage deed must be specified. This includes any compulsory products that must be contracted and what will happen to the interest rate if you cancel them. It also includes the term of the loan, the rate and any other specifications you should be aware of.
The introduction of the FIPRE has been most helpful for non Spanish mortgagees who can now check that the terms they were expecting to sign are actually embedded within the deed they sign with no nasty surprises down the line. The Notary will now check that the mortgage deed replicates the information on the FIPER and will raise with the mortgagee any differences they see before signing.
Product availability
As the Banks review their half year position we may see some further relaxations in rates and conditions as each Bank fights to gain market share. We have already seen a big reduction in margins for resident loans but slow progress to realistic pricing for non residents. As the non resident market is in fact the most buoyant at present it is hoped that pricing and general conditions will improve to enhance the options available.
At the higher end, so purchases above € 400k we already have much better product and whilst some Banks have now removed key areas of dispute like floor rates, for the average loan taken in Spain the pricing is double what it was back in the height of the market and compulsory products, like life cover, the norm.
Best mortgage buys are still difficult to come by with most branches offering what they think they may get away with rather than standard terms and independent mortgage advice is always going to help ensure the mortgage applicant only contracts what they have to, to achieve the best possible mortgage facilities.
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