Background on activity at the end of 2013
Back in late 2013 we started to hear rumbles from a number of the Spanish Banks that suggested there was a focus back on providing mortgages for buyers in Spain.
Whilst Spanish Banks never completely withdrew from the lending game no Banks had mortgage targets, criteria’s were made so tight only the most solvent clients qualified and pricing was pitched at a level that made an application questionable unless finance was absolutely needed in order to purchase.
The Banks in Spain used more favorable mortgages only as an incentive for those applicants who were actually buying their property from the Bank directly. This included higher loan to values and in many cases better overall terms.
So what is different now
Whilst little has happened on loan to values and rates 2014 is seeing a marked change in the Banks attitude to new applications.
Firstly some Banks who had removed themselves from the market completely have stepped back in with new mortgage product.
Secondly those who had continued lending throughout the crisis have this year given all branches and bank staff mortgage targets which they must meet. There is a new focus on Spanish lending that had all but disappeared in the last few years.
Under pressure from the courts and the Bank of Spain the Banks have been forced to offer a more transparent service to their mortgage application process and to provide a document at offer called a FIPER, which clearly outlines all the terms and associated linked products of the mortgage. This has lead to the removal of in many instances floor rates and a more customer focused attitude to ensuring the Spanish loan itself is understood before signing.
Why are the Banks in Spain starting to lend again
For most Banks lending is the first port of call in attracting new customers. No new lending, no new customers. This has meant that as the Banks have reduced their lending books they have also seen a reduction in the amount of total customers and products those customers hold. In the long term this would put severe pressure on the earning potential of the Banks.
Decreasing lending books also skew the level of bad debt the Spanish Bank has as a percentage of the overall mortgage book. Whilst bad debt in Spain does continue to rise this is very much within the resident market and the overall level of bad debts is stabilizing, however as a percentage of the total book for most Banks this is now over 13% and rising. This percentage will reduce if the mortgage book expands.
It is now widely reported that the general market believes the worst of the Spanish property crisis is over. Purchase prices for buyers in Spain are now realistic and valuations from the Banks valuation panels reflect this. Overall the risk of lending has decreased as Banks have become more astute at assessing the applicants and the security over which they will take a debenture.
Many Banks in Spain have been able to pass to SAREB the worst of the bad assets they held cleaning up their balance sheets and allowing for new loans to be constituted.
What is happening to mortgage terms and criteria’s
Whilst during the crisis Banks were very inflexible about criteria’s and rates for Spanish Mortgages there is now a slight but definable level of flexibility creeping back in. Bank staff have been told to use their discretion when assessing a file and not to lose quality clients for the sake of some small adjustments to rates or minor stretches on criteria. The flood gates have by no means opened but for the right applicants some ability to negotiate better terms is in place.
In general negotiations would include removal of penalty payments for early repayment, reductions to first year rates, the ability to remove or reduce level of compulsory products and a more pragmatic assessment of a clients incomes particularly those who are more financially complex.
The small changes at this point will not include higher loan to values and less likely to include a decrease in the general margins being charged. Whilst things have improved the cost of funds for the Banks in Spain remains high and until this adjusts pricing on Spanish loans will remain relatively high.
So will it be easier to get mortgage approvals in Spain
The level of knowledge within the Branch Staff population, for overseas applicant’s remains limited. This means there can be huge differences between the presentation and robustness of applications depending on the skill level of the person packaging it, their understanding of what the information is telling them, and their ability to get the mortgage application through their risk departments.
A good mortgage broker with the right level of knowledge and expertise will know what boundaries can be pushed and how to present an application to give it the best possible chance of approval.
Are there going to be any other changes
On top of having lending targets the Spanish Banks are now vying with each other to attract new current accounts and deposits.
This desire to attract new clients will be good news in the long term as Spanish Banks are forced to remove some of the exorbitant charges made on current accounts to ensure they do not lose customers to other providers.
Bankinter have just launched a new current account which has no maintenance charges, free national transfers for internet transfers, and pays interest on the balances. Whilst only suitable for residents of Spain this is a definite move in the right direction.
Caja Sur has removed floor rates from their existing mortgages and has told all staff they will be required to take one month off a year unpaid to cover the loss of profit.
La Caixa has put in place a new process for mortgage applications that allows for financial approval, before valuations are paid for, and have provided back to branches and the regions some level of mandate.
Things are not going to improve across the board at any great pace and it will be a long haul, with many changes to come, but the signs are there that in 2014 the Spanish Banks are going to be more active, more aggressive in the lending arena and possibly a little more customer focused and transparent than they have been in the past.
