Mortgage base rates in the Eurozone sank to a new record low of 0.338% in October, having fallen for six consecutive months.
12-month Euribor, the rate most commonly used to calculate mortgage repayments in Spain, fell 6.6% in a month, and a thumping 37.5% in a year, in response to signs of deflation in the Eurozone making it ever more likely that the European Central Bank (ECB) will intervene with fresh measures to stimulate lending in the Eurozone.
Mortgage Lending Up
Whilst Euribor declines, mortgage lending has been creeping up in recent months, offering one of the best signs yet that the Spanish property crash is drawing to a close (which doesn’t mean to say a feisty recovery will follow).
New residential mortgage signings rose 23.8% in August to 15,040 loans, the third consecutive month of increases, according to figures from the National Institute of Statistics (INE), based on data from the Registrars.
That means three consecutive months of double-digit increases in new residential mortgage signings, up 19% in June, and 28.8% in July.
The average loan in August was up 5.8% in a year to €102,430, whilst the total value of mortgage lending rose 31% to €1.54 billion.
On a monthly basis, however, new mortgage lending fell 16.9% in August, though that can be explained by a natural tendency for activity to fall in the summer holidays.
By region, the biggest market for new mortgage lending was Andalusia (2,823 mortgages), followed by Madrid (2,336) and Catalonia (2,049).
ANALYSIS by Mark Stucklin
Lower bases rates do not necessarily mean cheaper borrowing, as Spanish banks are loath to pass on savings to borrowers, preferring to charge fatter margins instead. Lenders are also asking for more guarantees than ever, whilst insisting on lower LTVs, and forcing borrowers to buy other products like home insurance, not always at competitive rates.
That said, the average interest charged in August was 3.76%, down from 4.29% a year before, according to figures from the INE. So even though banks are increasing their margins, borrowers are still benefiting to some extent.
Three months of double-digit annualised increases in mortgage loans is undoubtedly a good sign, even if it is still too early to forecast a sustained increase in lending. A return to normal levels of mortgage lending is a prerequisite for a wider Spanish property market recovery. Whilst coastal resort towns like Marbella and Ibiza are already recovering on the back of foreign cash-buyers, the vast majority of Spaniards don’t have enough capital to buy main homes or holiday homes until the banks start lending again.