A SHARP rise in the number of fixed-rate mortgages in Spain has been reported in the past two years – and they now account for 43% of every new loan taken out.
Mortgage loans granted reach new high as redemption penalties scrapped and advice regulated
31/07/2016
NEW mortgages taken out to buy property in Spain have reached a record year-on-year high, rising by 10% since April and marking two years of growth – and at the same time, a new EU directive implemented means paying off a mortgage early will no longer attract redemption penalties if it has been live for longer than six years.
At five years, the redemption penalty is capped at 0.25% of the loan, but if the consumer has signed for repayment conditions more favourable to him or her than the bank’s standard rate, the one that comes in at the lowest cost to the customer will apply.
Mortgage-holders now have the right to change the currency of their loan, and banks are not allowed to ‘forcibly’ sell other products as a condition of offering the mortgage, such as insurance which can be obtained elsewhere.
But there is no rule preventing banks from offering a better mortgage deal in exchange for taking out such products.
Even better, mortgage advice is now regulated and those who provide it may be required to hold certain qualifications, prove they have undergone certain training, and adhere to consumer codes of conduct.
Another positive move is that mortgage advisors’ commission will no longer be allowed to depend upon how many loans, or how much is lent, in order to prevent unscrupulous hard-selling to customers who are not in a position to be able to pay them off.
Mortgage advice, and training and qualifications of those who provide it, will be regulated by regional governments or the Bank of Spain.
‘Greater competition and lower interest rates’ key to affordable loans
For the moment, a ‘mortgage bubble’ like the one preceding the financial crisis is not expected to be a risk, largely due to home prices having fallen and banks tending to lend money in line with income, as well as the average loan being smaller and more stable, consumers being more cautious about how much they borrow, Eurozone interest being at zero or even in negative figures, and buyers being more likely to seek a fixed rate.
According to the National Statistics Institute (INE) for May, the most recent data available, the average mortgage taken out was for €104,480 – some 0.8% lower than in May 2015 and 3.6% lower than in April this year.
Of the 26,579 mortgages taken out in May 2016 for home purchases, the total lent came to just under €2.8 billion – exactly 33.1% higher than a year previously and 8.6% more than in the month before.
Banks are cancelling more mortgages than they are granting, meaning the likelihood of over-borrowing remains low, but the increase in home loans sought means the housing market is able to forge ahead with the consequent recovery it badly needs.
Estate agency experts believe greater competition between banks – something relatively uncommon before the housing market crash – and much lower interest ‘gives the sensation that the worst is over’.
Spanish variable-rate mortgages are revalued annually, giving consumers plenty of time to plan and to apply for a fixed rate if they see any danger of Eurozone interest rates spiking, although at present there is no sign of this happening.
With fixed-rate mortgages now accounting for 20% of the total portfolio – and, with them, a slightly higher rate charged than that of a variable-rate mortgage plus a set-up fee at the outset – means banks are able to deal with the zero or negative Euribor rates seen in recent years.
According to property experts, movement in the housing market is now very evident ‘after eight years of total stagnation’ where ‘nothing was being bought or sold’.
The year-on-year increase up to May 2016 was recorded as being around 23%, or an additional €4.76bn.
And 80.4% of mortgages granted in May this year were variable-rate loans, compared with 85.2% in April and 87.6% in March.
A typical interest rate for a 22-year mortgage – which continues to be the average term applied for – sat at 3.21%, up from 3.19% last year.
Based upon the latest data available – mortgages taken out in April – the majority of new loans were granted in Andalucía, at 4,916, followed by Catalunya’s 4,495, and Madrid’s 4,366.
These were the three regions where the most capital changed hands - €620.8 million in Madrid; €505.1m in Catalunya and €466.1m in Andalucía.
Annual growth in mortgages granted is highest in the Balearic Islands, with an increase of 66.9%, or two-thirds, on spring 2015, followed by a hike of just over half, or 51.6% in the Basque Country, and 47.7% in Castilla-La Mancha.
Monthly growth, between March and April inclusive, spiked most in Navarra at 36.5%, followed by the Canary Islands at 31.1% and Castilla y León at 24%.
At the opposite end of the scale, the number of new mortgages signed for fell most sharply in the land-locked western region of Extremadura, by 9.3% and in Asturias by 5.4%.
Related Topics
NEW mortgages taken out to buy property in Spain have reached a record year-on-year high, rising by 10% since April and marking two years of growth – and at the same time, a new EU directive implemented means paying off a mortgage early will no longer attract redemption penalties if it has been live for longer than six years.
At five years, the redemption penalty is capped at 0.25% of the loan, but if the consumer has signed for repayment conditions more favourable to him or her than the bank’s standard rate, the one that comes in at the lowest cost to the customer will apply.
Mortgage-holders now have the right to change the currency of their loan, and banks are not allowed to ‘forcibly’ sell other products as a condition of offering the mortgage, such as insurance which can be obtained elsewhere.
But there is no rule preventing banks from offering a better mortgage deal in exchange for taking out such products.
Even better, mortgage advice is now regulated and those who provide it may be required to hold certain qualifications, prove they have undergone certain training, and adhere to consumer codes of conduct.
Another positive move is that mortgage advisors’ commission will no longer be allowed to depend upon how many loans, or how much is lent, in order to prevent unscrupulous hard-selling to customers who are not in a position to be able to pay them off.
Mortgage advice, and training and qualifications of those who provide it, will be regulated by regional governments or the Bank of Spain.
‘Greater competition and lower interest rates’ key to affordable loans
For the moment, a ‘mortgage bubble’ like the one preceding the financial crisis is not expected to be a risk, largely due to home prices having fallen and banks tending to lend money in line with income, as well as the average loan being smaller and more stable, consumers being more cautious about how much they borrow, Eurozone interest being at zero or even in negative figures, and buyers being more likely to seek a fixed rate.
According to the National Statistics Institute (INE) for May, the most recent data available, the average mortgage taken out was for €104,480 – some 0.8% lower than in May 2015 and 3.6% lower than in April this year.
Of the 26,579 mortgages taken out in May 2016 for home purchases, the total lent came to just under €2.8 billion – exactly 33.1% higher than a year previously and 8.6% more than in the month before.
Banks are cancelling more mortgages than they are granting, meaning the likelihood of over-borrowing remains low, but the increase in home loans sought means the housing market is able to forge ahead with the consequent recovery it badly needs.
Estate agency experts believe greater competition between banks – something relatively uncommon before the housing market crash – and much lower interest ‘gives the sensation that the worst is over’.
Spanish variable-rate mortgages are revalued annually, giving consumers plenty of time to plan and to apply for a fixed rate if they see any danger of Eurozone interest rates spiking, although at present there is no sign of this happening.
With fixed-rate mortgages now accounting for 20% of the total portfolio – and, with them, a slightly higher rate charged than that of a variable-rate mortgage plus a set-up fee at the outset – means banks are able to deal with the zero or negative Euribor rates seen in recent years.
According to property experts, movement in the housing market is now very evident ‘after eight years of total stagnation’ where ‘nothing was being bought or sold’.
The year-on-year increase up to May 2016 was recorded as being around 23%, or an additional €4.76bn.
And 80.4% of mortgages granted in May this year were variable-rate loans, compared with 85.2% in April and 87.6% in March.
A typical interest rate for a 22-year mortgage – which continues to be the average term applied for – sat at 3.21%, up from 3.19% last year.
Based upon the latest data available – mortgages taken out in April – the majority of new loans were granted in Andalucía, at 4,916, followed by Catalunya’s 4,495, and Madrid’s 4,366.
These were the three regions where the most capital changed hands - €620.8 million in Madrid; €505.1m in Catalunya and €466.1m in Andalucía.
Annual growth in mortgages granted is highest in the Balearic Islands, with an increase of 66.9%, or two-thirds, on spring 2015, followed by a hike of just over half, or 51.6% in the Basque Country, and 47.7% in Castilla-La Mancha.
Monthly growth, between March and April inclusive, spiked most in Navarra at 36.5%, followed by the Canary Islands at 31.1% and Castilla y León at 24%.
At the opposite end of the scale, the number of new mortgages signed for fell most sharply in the land-locked western region of Extremadura, by 9.3% and in Asturias by 5.4%.
Related Topics
More News & Information
MORTGAGE-LENDING has reduced dramatically in Spain in the past year, but that has not stopped homes on sale being snapped up: Over a third were purchased in cash, according to the latest figures.
RESIDENTIAL property sales have been shrinking consistently throughout 2023, but latest figures show this trend is relenting.
MORTGAGE signings have dropped by nearly a fifth as a result of the greatest leap in interest rates in over 20 years – but debt defaults have not risen, despite the Euribor being at its highest since 2011.