Spanish property market and Spanish mortgages info

The latest round of bank results is indicating few banks are reaching their lending targets due to lack of demand.

The dilemma for the banks is two fold. Lending margins are weak against both cost of funds from money markets and difference between what must be paid to depositors versus rates changed to borrowers and the interest rates being charged where the bank itself is selling the stock.

The Euribors are rising and this combined with the higher margins above Euribor having to be charged; and the habit of Spanish Banks to linking compulsory products to the loan whether required or not is enough to make buyers think twice about whether now is the right time to buy; even for those lucky ones in a position to do so. Demand is therefore still low.

Non resident margins are even higher than resident ones so whilst now is possibly a good time to buy; particularly at the better end of the market where prices seem to have reached a plateau; interest rates are higher than the underlying ECB base would imply they should be. Demand does however seem to have improved as non residents snap up perceived bargains.

Where banks require to off load stock is where the best Spanish mortgage rates can be found how much in way of long term non profitable loans the banks are storing up in an effort to clear stock is difficult to calculate. Whether the banks would be better off in the long term reducing prices to clear stock than giving very preferential rates and high loan to values remains to be seen. It is indicative however of the Spanish Banks to use short term measures rather than longer term strategies to deal with their issues.

Most businesses would take a more immediate hit now whilst the markets expect it rather than continue to subdue profits in the longer term by selling off stock with artificially low mortgage margins.

All Banks are slowly writing down assets on their balance sheets which suggests there is still some way to go before the 2 bed, 2 bath apartments hit bottom of the market. At present for Coastal areas and the rest of Spain prices per square meter remain well above the index shown in 2002. Best guess is prices will hit 2002 levels before they rise which means we have a good € 500 per meter sq average drop yet to come.

Author Heather Chambers - IMS Spanish Mortgage Solutions.
Contact: heather@imsmortgages.com