Spain Mortgage Market

Spain Mortgage Market

 

Spain Mortgage Market

 

Spain has a developed mortgage market with a number of lenders offering a great variety of mortgages. Mortgages in Spain offered by banks and savings banks (know as Cajas in Spain) and sold either directly by the lenders or through mortgage brokers. Several international banks, including British banks like Barclays and Lloyds TSB, offer Mortgage in Spain alongside the national banks and cajas.

The mortgages differ in terms of the costs and terms that are from inflexible and expensive mortgages to cheaper and flexible ones. The Spanish mortgages vary in their attractiveness from bank to bank and even from branch to branch.
 

There is a high need for the mortgage funding in the country like Spain as people prefer acquiring a dwelling in property than renting the same. The Spanish mortgage market law (Ley del Mercado Hipotecario 1981, LMH) serves the legal framework for the creation of the market according to the article (art.) 47 Spanish Constitution of 1978, which establishes the constitutional obligation of facilitating to everybody the access to a dwelling.

In February 2002 the total outstanding volume of mortgage loans in Spain has been 305.657 million €. Spain is the fifth issuer of mortgage bonds in Europe (i.e. 1.5%) in end of 1998.

According to the report released by the Colegio de Registradores de España (the Spanish association of house and land registrars), the average mortgage in Spain is (111,351 euros) which represents a massive 83% of the total value of the property purchased. The average mortgage in Spain represents 41.6% of borrowers wages.

Mortgage Types In Spain

The vast majority of mortgages sold in Spain (to both Spaniards and Foreigners) are variable rate mortgages. This means that mortgage repayments vary according to the base rate set by the European central bank (this has been set at 2.00% since June 2003). In case of the variable rate Spanish mortgages cannot be certain what their mortgage payments will be in the future. If the interest rate falls they will pay less, but if it rises they will pay more.

In case of the fixed rate Spanish mortgage there is higher interest payments in the short term but if interest rates rise a fixed-rate Spanish mortgage holder might end up paying less than would be the case with a variable-rate Spanish mortgage.

Some Spanish mortgage lenders also offer a mixed mortgage that involves a certain period (for instance 5 years) of fixed interest payments, and a floating rate thereafter.

Presently some Spanish mortgage lenders have started offering an interest only Spanish mortgage under which borrowers only pay interest on the loan in their mortgage repayments, and then return the capital either at the end of the mortgage or at some point in the future during the lifetime of the mortgage.

Off-balance – sheet (OBS) creation and maintenance

once the loan pool is substantial enough to begin securitisation, bids are invited from securities companies to provide an OBS facility for warehousing the loan pool until the bonds are issued.

Underwriting –
After the OBS process is complete, the originator works closely with the securities company to structure the security and present it for assessment to independent rating agencies. After suggested modifications are incorporated, the originator and/or other investors set up an SPC to which all loans are transferred. The SPC then issues bonds to external investors.

Interest Rates On Spanish Mortgages

The interest charged on all Spanish mortgages is calculated as a function of the base rate set by the European central bank, beyond that mortgage lenders in Spain are relatively free to set the charges and terms of the Spanish mortgages they offer. This translates into significant differences between Spanish mortgages in terms of their costs and conditions.

Interest rates in Spain vary, but are generally much lower than in the UK, and competition between Spanish banks is fierce.

Low Mortgage Interest Rates and Housing Market In Spain

The Royal Institution of Chartered Surveyors (RICS) in its publication on Europe’s housing markets has concluded that housing prices in Spain, France and Ireland continued to rise by double figures during 2004 and that there is little evidence to suggest that markets could crash in 2005.
The summary of the RIC paper says of Spain, France and Ireland, “Each year for the past three or four years it is predicted that the following year would herald a market slowdown in the booming residential markets of Europe. Low interest rates, instead, have continued to feed beliefs that capital gains can still be made out of housing and, to an extend, they have become self-reinforcing”.

Low interest rates in Spain have helped in maintaining the rise in housing demand, boosted by a steady increase in mortgage loans. Real mortgage interest rates in Spain were negative last year, averaging just 3.49 percent in Autumn 2004, and rates are presently 4 points lower than mortgage rates in the UK.