Kevin Monger, a founding partner of Mortgage Direct S.L – one of the leading mortgage brokers in Spain – answers questions on the current state of the mortgage market for foreign buyers.
What is happening to foreign demand for mortgages in Spain? Up or down?
In the immediate aftermath of the Brexit vote, we lost a handful of British clients where their deposits had been reduced as a result of the Pound’s sudden and dramatic fall against the Euro. However, these were isolated cases and we have not noticed any real slowdown in the overall number of enquiries from British clients. We have even had enquiries from clients telling us they want to move to Spain as a result of the UK’s decision to leave the EU. Over the last few years, we have seen rising foreign demand for Spanish mortgages and we believe this will continue. Our view is that purchasing a property in Spain is a lifestyle choice and buyers will continue buying, irrespective of the Brexit vote. Spain has increased in popularity as a holiday home destination in recent years as Greece, Turkey and other destinations have become much less attractive.
Which nationalities are increasing demand, which decreasing?
We are seeing a lot of demand from Dutch clients who are buying in certain parts of Spain, such as Ibiza for example. There are more buyers from the USA, Hong Kong, Singapore, the UAE. Many of these clients are buying in Barcelona, Marbella or the Balearic Islands. There is also increasing demand from French and Belgian nationals. We have not noted decreasing demand from any nationalities.
Which nationalities are comfortable borrowing, which aren’t?
Unsurprisingly, we feel that British clients are very comfortable borrowing. Many of them would like to take out cheaper interest-only mortgages, which unfortunately are not available in Spain, but this does not seem to diminish their appetite for borrowing. With very low interest rates, low-priced property and banks very willing to lend to foreigners, most of our clients irrespective of nationality seem comfortable borrowing. We always hear that there are lots of cash buyers, but we feel that borrowing is so cheap that mortgages are more attractive than tying up savings unnecessarily in a Spanish property, especially given that remortgaging does not exist here and equity-release is only possible for renovation or buying a new property and even then it is very difficult.
How do mortgage requirements differ by nationality?
We find that French and Belgian nationals much prefer fixed rate mortgages, whereas other nationalities seem equally happy with variable rates. We find that certain nationalities would like features of mortgages they are used to in their home countries to be available in Spain. For example, Dutch and Scandinavian clients ask about interest-only and 30-year terms, which are very common in their countries. French and Belgian clients often ask about capped interest rates. However, the Spanish mortgage market is relatively unsophisticated and the products are quite basic. We find that financial wherewithal is more of a determining factor than nationality when it comes to borrowing as much as possible. We know that the vast majority of our clients (irrespective of nationality) wish to borrow the maximum amount possible.
Are Spanish lenders keen to lend to foreign clients?
Yes, they are. Foreign buyers are a vital ingredient in the housing market and the banks know this. There are many foreign buyers with excellent profiles and the banks are willing to offer conditions that are very close to what they offer to Spanish nationals or foreigners who are fiscal residents. They are equally willing to lend to other foreign nationals that satisfy the affordability criteria.
What are their typical lending criteria?
As a rough guide, around 1/3rd of a client’s net monthly income must be sufficient to cover existing monthly “debt” commitments, as well as the new mortgage. If this basic requirement is met, in theory the maximum loan amount should be possible, provided the applicants have sufficient cash to cover the balance and the fees and taxes.
Are all lenders the same to deal with, or some better than others?
We have a core group of banks that we work with at any one time and the banks in the group can change over time depending on what they are offering. At the moment, we have a larger group of lenders we are working with regularly than at any time since the financial crisis. There are more options, which is better for everyone. The banks are very different to work with some being far more conservative than others. The key thing is to have the best contacts at each bank as it is very much as case of who you know and not what you know. Having just celebrated our 10-year anniversary as a company, we have a great deal of experience in the mortgage market in Spain and naturally we have built very strong relationships with all the banks over this time. We are regularly invited to meet senior bank representatives to discuss the market and improve what we offer our clients.
Are there any big obstacles to getting mortgages for foreign clients?
Not really. The banks are quite flexible and provided that the affordability criteria are met, the mortgage is usually offered.
What kind of mortgage deals are there available today?
As I mentioned above, the mortgage market is really not that sophisticated in Spain and the big choice currently is whether to go for a variable or fixed rate. Up until a year or so ago, fixed rates were not very attractive and over 95% of mortgages signed were variable. The banks are now offering very attractive fixed rates in an attempt to get more clients to choose fixed over variable. With the Euribor being at a record low and showing no signs of increasing any time soon, many clients still opt for variable rates. The key thing is that at Mortgage Direct we offer exclusive deals not available if clients go directly to the banks themselves. We can offer variable rates as low as Euribor + 1.25% or fixed rates as low as 2.6% over 25 years. To be eligible for these rates, clients must have excellent profiles. Rates for clients with standard quality profiles might be Euribor + 1.7% variable or fixed at 2.95% over 25 years. These are still much lower than the normal rates offered directly by the banks, where clients might be offered Euribor + 3% for a variable rate or 4% fixed over 25 years.
Mortgage Direct was set up in 2006 by its founders, Kevin Monger and Katherine Walkerdine. There are currently five other mortgage brokers all offering professional mortgage advice to the company’s many clients plus a team of support staff. The company has grown year-on-year throughout its 10-year history, and is recognised as Spain’s leading independent mortgage broker by banks and real estate agents in Spain. Mortgage Direct is now also offering mortgages to clients buying properties in Portugal.