Over the past few months the rate of “demorosidad” late payment among foreign clients has began to worry banks.
To date the majority of these late payments among foreign clients are caused not by the client’s failure to send money to pay the monthly mortgage payment. Indeed historically, culturally and economically foreign clients are very responsible in terms of servicing their debts. The problem is caused by clients sending the wrong amount.
Banks have never really understood the foreign sector and apart from the mortgages, foreign client are rarely huge sources of income for banks, as they tend to lay on the liability side of the balance sheet.
Traditionally smaller institutions have focused on their natural and local markets. The explosion of the foreign market meant these institutions, suddenly and with no planning or preparation, expanding their client base.
Brokers would use these smaller institutions because of their aggressive growth policies. More often they used these institution because of there lack of resources and therefore their lack of being able to understand foreign documents.
While previously a lack of resources and understanding help secure the loan, that very some lack of resources begins to create several enormous problems.
The most worrying of all the problems is that in almost all cases these institutions do not have the correct contact details for their foreign clients. This is not because the information has not been made available.
The reason is simply that the banks systems are designed for a traditional Spanish client. They do not allow for a foreign address and are limited to a 7 digit telephone numbers.
Most mortgages in Spain are variable and are based on annual Euribor plus a differential. A figure for annual Euribor is published every month. As a result, the bank will use the annual Euribor published on the 12th month of your mortgage and that figure will be used as the base plus the agreed differential during the subsequent 12 months. This process is then repeated at the same month every year until the end of the mortgage period.
In your mortgage deed it will clearly state that the bank has an obligation to inform you of the change in rate at least two weeks before the first new payment is due.
When clients do not receive correspondence form their bank they will not be aware of these changes.
Not having received any correspondence since opening the account and signing the mortgage, clients continue to send the same amount as the first year. Interest rate has increased over the past few years from 3% in 2005 to 5.5% in recent months. The impact on monthly mortgage payment is significant. Within a few months the shortfall begins to accrue and suddenly represents several payments.
You will also find a number of charges being withdrawn from your account, including house and life insurance to cover the mortgage. If your are not aware of these costs and are therefore not making provisioning for these costs you will soon fall deeper into the situation.
Failure to keep up on repayment can result in the loss of your property and investment. While you think that you are up to date. It is important to check. Especially if you have had little or no correspondence form your bank.
There are lots of banks in Spain that focused on foreign clients and have the resources and products that are relevant to a foreign market. It is never too late and increasingly importantly to make sure your situation is in a healthy state.