2017 overview
2017 is drawing to a close with a much better situation for mortgage lending in Spain and the Spanish Banks.
All Spanish lenders had ambitious lending targets for the year and these have not been reached but in general across all key areas 2017 has been a much better year.
Non resident mortgages in Spain have been particularly buoyant as investors have flocked into Spain to take advantage of low house prices. Loans for properties in major Cities like Barcelona and Madrid have risen considerably as has been the case for the major tourist resorts like Marbella and the Balearics.
Property prices have risen slowly but steadily in many regions and there is a renewed confidence in the market.
As unemployment has started to fall and the economy started to grow more Spanish nationals have also found the confidence to buy and take on a mortgage in Spain.
Interest rates drop during 2017
Interest rates have dropped throughout 2017 partly because the Euribor has continued its downward trend partly because of competition between the Banks in Spain and partly because of the move to fixed rates on very low terms.
The change in split of fixed rates from variable rates has been one of the most marked differences for 2017, whilst this trend started back in 2016 it has gained momentum in 2017. From under 5% of new loans being taken on a long term fixed rate this has shifted to an average of 35% each month.
Fixed rates for terms between 10 to 25 years have become very popular with both mortgagees and the Banks and provide stability at this point for both parties.
Whilst in general most lenders have higher early repayment penalties for fixed rates many of them only charge the higher penalty if rates are lower at the point the borrower redeems or reduces their loan and they suffer an interest rate loss. Given where rates currently are it is unlikely in the medium term that rates will drop lower so higher penalties may be a moot point.
With fixed rates staring from around 2.3% for a full 15 years and no Spanish re-mortgage market currently in Spain fixed rates are good long term bet.
Bank lending targets and mortgage book growth
For the first year I many we also saw a couple of months during the year where new business onto the mortgage books exceeded cancellations and redemptions. Whilst across the year there was still a net outflow of loan capital the monthly difference has narrowed considerably.
Whilst initially all banks wanted to lower their mortgage books long term this is not a sustainable business model so the change in 2017 will have been a welcome relief.
Bad loans and loans in arrears have also fallen for all lenders this has been due to some bad debt being moved to the Spanish bad Bank SAREB but also a natural progression from the economic upturn. New lending is back to pre-crisis default levels where very little to nothing went into arrears.
Underwriting changes during the year
Spanish Banks have remained cautious in their risk assessments but we are staring to see some slightly more pragmatic approaches to underwriting with a more flexible overview of loan files being taken rather than a tick box meets criteria or does not.
Pressure from the front line to increase business levels has allowed for challenges to good cases to be made with retail operations winning some of these challenges rather than Risk completely ruling the roost.
Compliance and checking of documentation is far more thorough now than before and this will not change, regulation by the Bank of Spain will ensure that risk decision are made on an affordability basis and that this affordability must be provable via official documentation. Getting a loan off the back of Bank statements alone will stay firmly in the past.
Outlook for 2018 lending
During the year average loan sizes have increased, numbers of loans have increased and total capital lent should reach the best kevels for many years.
The final figures for 2017 will not be published until February but it is anticipated the numbers will make much better reading.
Whilst targets in general will not have been met this is more due to a rather over optimistic view of what might be possible rather than an indication the market in its totality is not recovering.
We should expect 2018 to be better again but there remains some real uncertainty surrounding the impact of any possible devolution on Catalonia and the impact of Brexit on UK residents buying in Spain. UK residents remain the largest non resident purchasers and borrowers in Spain despite new markets opening up.
Growth in US buyers and Canadians possibly encouraged by the new trade deal have risen in 2017 and may well continue in 2018 as price per square meter in the major buying areas whilst growing remain at low levels in comparison to many other places in the world.