The banks’ loss of liquidity and a higher risk of default due to rising interest rates explain the change.
Gone are the days when the banks waged an aggressive war over new customers for their mortgage products, offering advantages such as a 50 year repayment period, the loan of up to 100 per cent of the value of the property and competitive costs. Now factors such as increasing debt, the rising Euribor and tension over liquidity in the banking sector have caused lenders to change their strategy. Experts calculate that today more than half of mortgage applications - around about six out of ten - are being turned down.
Of course no one is saying this in an official capacity, but speaking anonymously bank employees
admit that lenders have “substantially” toughened their requirements for granting a loan, and instead are concentrating on attracting money through savings products. “The difference is that
now they are not giving credit lightly, but only to clearly solvent customers. With this new scenario
no branch wants to get its fingers burned”, explains the deputy manager of one Malaga bank.
The manager of a branch of another well known banking firm agrees: “Today no bank will give
100 per cent of the value of the property, like they did before, and so buyers have to have saved up
at least 20 per cent of the cost of the sale”, she explains. “Now we are asking for more guarantee,
such as the mortgage of another house, which means involving third parties. The aim is to get as
much security as possible”, adds another professional from the banking world who prefers not to
give his name.
According to Ángel Yagüe, the coordinator of the Andalusian Institute of Financial Studies, when a mortgage operation exceeds a certain level it is put before a risk committee. “Many
banks are having extreme difficulty obtaining liquidity in the interbank market which is making
them scrutinise all their transactions very carefully”, he explains.
He adds another argument: lower property valuations. “These are falling and so if the value of the security decreases, then so do the possibilities of obtaining a loan. What’s more if companies have even the slightest doubt that a customer might default on repayment, now they say ‘no’”.
The statistics confirm the trend: in Malaga the number of new mortgages signed has fallen by 41.9
per cent in the last year, according to the National Statistics Institute, from 4,786 in March 2007 to
2,780 in the same month of 2008.
The rising mortgage default rate is contributing to the banks’ new reluctance to lend money. In April this figure went up for the tenth consecutive month to 1.302%, its highest point in eight years.
The main complication on the mortgage scene has been the rising Euribor, the interbank offered rate used to calculate most mortgages. The average rate for June was an all time high of more than 5.3%. This adds some 69.33 euros extra a month to the repayments of an average mortgage of 150,000 euros taken out over 25 years, that is, 831.96 euros more this year than last.
House buyers are now finding doors close in their faces when just months ago the same doors were wide open and decorated with enticing offers.
Even some of the banks that boasted the cheapest mortgages, especially the online firms, are putting their rates up: at the beginning of June ING Direct started offering the Euribor plus 0.55 per cent instead of 0.33 and other banks, such as Uno-e, Ibercaja, Sabadell Atlántico, Openbank and
Bankinter, have followed suit. These internet increases are expected to spread to the rest of Spain’s banks over the next few months.
