Over view of Spanish Loans in 2015
In 2015 from a very stagnant nonresident loan market in the last few years, steady and consistent growth of Spanish mortgages was seen across the board.
Spanish Banks looked during the 12 months of 2015 to reverse the trend of diminishing books of mortgages in Spain, raised branch targets and provided product with decreased margins above Euribor.
During 2015 the aim of the Banks to halt the process of more mortgages in Spain being redeemed each month than new loans being constituted was only marginally successful with only one month within 2015 having a net inflow of loans.
What was more positive was the desire of the banks to lend and a more flexible approach to risk assessment.
The Marbella blip
The Supreme Court decision to overturn the Marbella urban plan, which had ratified a number of properties and cleared the decks for borrowing against properties that could not be mortgaged previously, was seen as a blip in an otherwise more positive year.
Some lenders in a complete reverse from the risk adverse stance of the last 7 or 8 years have taken the view that in due course a new plan will be put in place. This new plan it is believed will yet again ratify most of the properties with infractions, and so the Banks will continue to lend against most of them. One lender in Spain has even set out a stance where they will cover the cost of the valuation fee if the valuation highlights a legal issue that it was not reasonable to say could have been picked up in normal searches. For the region of Marbella until a new plan is agreed the 1986 PGOU applies.
Mortgage targets in Spain for 2016
Whilst many Banks and their branches did not meet the mortgage targets set for 2015, all lenders have increased the targets for 2016 and most have now come back into the nonresident lending market. For some lenders this is after many years of not granting loans or considering applications from overseas buyers for a Mortgage in Spain.
Lenders coming back to the market included BMN and Caja Sur both of whom have done so in an aggressive manner with leading edge terms and conditions. For lenders like Sabadell who have remained in the credit market throughout the crisis, and in 2013 held the best buy products across the board, this new competition will mean they may have to reconsider their pricing and linked products if they wish to retain market share.
In past years, when targets have been set at the beginning of the year, many of the Branch staff have been shocked by the level of business they are expected to achieve in the environment of high interest pricing and low house sales. This year despite targets doubling in many cases, there is more widespread general belief the targets are achievable.
Pricing and interest rates
During 2015 Spain saw a decrease in overall interest rates due to two factors. Firstly the 12 month Euribor, to which most tracker loans are linked, fell during the year. Secondly in an effort to stimulate new lending most Banks in Spain dropped margins above Euribor. In 2014 for non resident Spanish loans, it was not unusual to be charged a margin above Euribor of between 3% to 4%, this dropped to between 2% to 3% during 2015.
Toward the back end of 2015 a number of Banks launched fixed rates products and in general against the variable these were for the first time in Spain competitive and stable. Previously any fixed rate mortgage product types were much higher than the underlying variable, had little to no flexibility in the much higher early repayment penalties, and changed regularly meaning what you applied for was not often what you finally were offered.
2016 should see the trend toward fixed rates continue. Most Banks now have a very good range of fixed rate possibilities ranging from a very attractive 2.75% for 20 years to 4% for 30 years. Given the Euribor, will over the medium to long term, rise from its current level and re-mortgaging facilities in Spain are nonexistent, taking a full term fixed rate at this type pricing level would seem a good way forward for most applicants.
Variable rate margins remain well above the levels seen during the boom times and it is difficult to envisage them dropping to these levels again but it is hoped as 2016 unfolds that the lenders will start to cut margins. A more reasonable level, which is where the banks should aim, is for variable rate margins to not exceed 1.5% above Euribor.
Risk criteria’s
Generally risk criteria’s have eased slightly in the last few months. The lenders in Spain for Spanish mortgages work off affordability ratios looking to see that the level of outgoings against net incomes does not exceed a certain level.
For most lenders this will not exceed 35% so only 35% of the net incomes can be utilized for debt repayments.
The way each Bank assesses affordability ratios for a Mortgage in Spain varies from Bank to Bank, some may use all net incomes others may limit it 80%. Some have affordability ratios at 30% and some can go as high as 40%. The key overall change to risk criteria’s is the attitude by which they are applied, with risk teams looking for reasons to do loans rather than reasons not to. This is where the main shift has been.
Some of the newer lenders to the nonresident market also do not have the same hang ups about buy to let owners, single applicants and certain passport holders as other lenders may have had in the past.
Further changes include some lenders being a little more pragmatic for high earners whose debt to income ratios may exceed the norm but whose net disposable incomes remain very high.
Compulsory products
An area of continuing concern, particularly for International mortgage applicants, is the practice of applying compulsory products to the application process. This will always include a bank account and buildings insurance but can also include life cover and other ancillary products.
At present for those lenders like Sabadell, who have remained in the market across the years, and have seen compulsory products as part of their overall profit margin and pricing there is no deviation from this practice. For new lenders trying to break back into the market there is a more flexible approach and whilst they will still offer lower pricing if certain products are contracted they are not making it a pre-requisite of lending.
La Caixa and Sabadell may be forced during 2016 to review their stance of adding the life cover as a lump sum premium to the loan amount as a wider level of options from other lenders becomes available to clients.
Loan to values
During 2015 60% loan to value remained the level at which most Banks in Spain looked to lend. Mortgages in Spain for non residents could be gained for up to 70% but this was only offered by a very small handful of Banks. If you did not meet some of the idiosyncrasies of the risk criteria of these limited lenders 70% was difficult to achieve.
During 2016 it is expected that more lenders will increase the loan to value to 70%. Pressure for lenders like Bankinter, who have considered it on a limited basis, to make 70% standard is growing. Other lenders whose preference remains to hold the 60% level will find they lose market share even if on a case by case basis they will consider it.
Lenders who currently restrict loan to values include la Caixa outside of the Balearics and Barcelona, Santander and BBVA.
For repossessions most lenders will still consider higher loan to values for their own properties and it is not unreasonable for a purchaser in Spain to expect to be offered 80% to 90%. It is most unlikely any lender will raise Spanish mortgage loan to values above 70% for non fiscal residents of Spain outside of the sale of their own stock.
Re-mortgages
Due to the high cost of moving from one lender to another there has never been an active remortgage market in Spain. Currently no lender offers a re-mortgage product and generally they are not keen to look at a transfer of existing capital from another lender to themselves in any circumstance.
This type of business forms no part of any Banks current targets despite the fact that there remains a market they could access. This market is the handful of quality clients who completed on loans during the years of 2009 to 2013 and are stuck on very high margins above Euribor. These mortgagees would have a history of meeting repayments without defaults, which makes them a lower risk than a new applicant, and they personally would benefit considerably, despite the high cost of moving, by halving in most cases their interest rate.
Remortgages with extra capital remains a complete No No in Spain unless the funds are for improvements to the property and on the odd occasion for supporting a new purchase in Spain.
Possibly in 2017 the stance by Spanish Banks on remortgages may change but for 2016 it is most likely this will remain a very difficult area of lending.
Interest only
After the crisis, and under pressure from the Bank of Spain, all lenders withdrew interest only as a facility. There are no circumstances where it can be seen that this will change. Most European countries have now withdrawn or are restricting interest only facilities and for Spain repayment loans will continue to be the only offering .
Mortgage application process for 2016.
When applying direct to a Bank it is almost certain the branch will try to gain top end of pricing and add compulsory products telling the applicant is must be taken. If it is not accepted by the applicant they may then get into some kind of horse trade improving bit by bit terms and conditions rather like bartering in a foreign market.
Knowing what you can push and how far you can push it is one of the expertise of a good mortgage broker in Spain and one of the key reasons a potential buyer should consider using an intermediary.