Mortgages in Spain increase
May 2016 continued the upward trend for loans in Spain registered at land registry.
Spurred on by an increasing level of non resident purchases, low interest rates and a continuing static house price market 2016 figures continue to rise.
The number of home loans rose by 34.1% against the same month of last year and were up by 2,972 on the previous month.
The average loan size, which earlier in the year had started to climb, fell back in May dropping to €104.500 in comparison to €108.400 in the Month of April. The average loan size ,whilst not appearing to hold back increases in the level of capital lent ,will mean that Bank projections and budgets are possibly falling short of where the lenders wanted to be.
Capital lent
The annual figures show clearly that numbers of new loans have significant yearly growth up 19.7%. Despite the recent drop in average loan size the accumulated growth of capital lent for the year so far is up 21.4%.
In May a total of € 2.776.965 million of new mortgages were constituted.
Notary offices versus Land registry
There remains a real mismatch between figures coming from the Notary offices on signing, and those coming from land registry at registration. Whilst the two sets of statistics are from a different point in time in the securitization of a loan one would expect to see some similarities as each month progresses.
The only similarity between the two reporting structures is that both are showing increases in numbers of, and capital lent however the average loan size is considerably higher according to the Notaries at €123.297. There seems to be no real explanation for this.
The Notaries reported a drop by 5.1% of average price per m2 in the month of May which will be of some concern to buyers, lenders and estate agents. The expected kick start of the housing market appears to be stalling a little.
Evolution of loans month on month
The amount of mortgages in Spain, granted for the purchase of a home, grew as a percentage of borrowings in the month, reaching 58.455 of the total credit lent.
The evolution of Spanish loans over a 5 year period shows that the intermonth figures are broadly in line with normal trends.
One very distinct difference from 2015, and previous years, is the amount of mortgages contracted in Spain that have been taken on a fixed rate basis. For many years well over 90% of all loans completed on a variable rate basis. In 2016 the share of fixed rates has risen from 5% to 6% to 19.6% of the total market.
Euribor continues to be the index of choice for lending applications where a variable rate is applied and average interest rates dropped to 3.19% down by 6.1% on the same month of the previous year. This was also a reduction from last month when the average interest rate was 3.25%.
Interest rates
Margins above Euribor for variable rate products continue to be held for the non resident market at levels well above those achievable in the boom years. On average margins above Euribor are between 1.75% to 2.5%. These are lower for fiscal residents.
Due to the Euribor being in negative territory many lenders have started to incorporate into the loan deeds a 0% base so that loans cannot fall into negative interest rate, whilst the Euribor remains itself in negative territory.
Best buy products for the medium to longer term seem to still be fixed rates despite some of the lack of flexibility over early payment penalties.
How to avoid compulsory products
Life cover being compulsory, a bug bear of many mortgagees, particularly those from the UK where Banks cannot insist on it, is something that can be avoided after year 1 with a fixed rate. As yet many lenders have not written anything into the loan deed that penalize a client on a fixed rate who cancels the life cover in year 2.
Some banks like La Caixa and Abanca get round this by having a higher fixed rate written into the mortgage deed, which is discounted each year based on the products taken, rather than writing a rate that is fixed and cannot be changed into the deed. Others like Sabadell take the life cover as a lump sum at completion and add it to the loan amount.
Most productive regions
Regionally normal trends applied for May with Andalucia, Cataluna and Madrid having the highest level of numbers of new loans. The Balearics, whilst from a much small base, is the region storming away this year with the numbers of loans being up 66.9% and the level of capital increasing by 78.2%.
Net outflows
Numbers of loans redeeming reached 29,129 so despite the ongoing market upward trend the Spanish Banks are still seeing a net outflow each month. Good news for lenders however is that defaults as a percentage of the loan books continues to fall.