Tighter lending conditions for riskier mortgages and loans to developers to buy land are on the horizon. A new directive from the Bank of Spain comes into effect on 1 January directly affecting certain mortgage loans.
The directive, which aims to bring Spain in line with international regulations, will limit bank loans to a maximum of 50% of land value, and tighten criteria on mortgages with over 80% loan-to-value.
For developers, the regulations state that the maximum loan for the purchase of land will be 50% of the lower of two values: the purchase or valuation.
For mortgages with an LTV of 80% or more, banks must apply “reinforced criteria”. Furthermore, each bank must establish a loan-to-income limit, the percentage of earnings taken up by a monthly mortgage payment. If the client exceeds this amount they will not be able to take out a mortgage.
The directive also includes changes to provisions. Once default on payment exceeds three months, the provision from the bank must be 60%, applied to the amount not covered by the mortgage guarantee.
Also new is the value of the guarantee. This will no longer be the value at the time of mortgage approval but the value after a new valuation. This will generally be at least 40% less.