I see signs that the Spanish mortgage market is heading for choppy waters as a result of Government interference, and it’s not great news for the housing market in general, and foreign buyers in particular.

The other day Banco Santander announced their Q1 results and tactfully pointed out that, thanks to new mortgage regulations, it’s getting harder to sign a mortgage in Spain due to “longer and more complicated processes” in the words of Managing Director José Luis Álvarez. He was too diplomatic to criticise the Government in Madrid for its new mortgage law but you don’t need a PhD to work out what he was saying. The new regulations are going to make it harder and more expensive to take out a mortgage in Spain, especially if you are a foreigner, as lawyer Raymundo Larraín points out in this article: A summary of Spain’s new mortgage act, and the obstacles it creates for borrowers from abroad.

Foreign demand for property in Spain was already going soft before the new mortgage regulations kicked in on the 17th June 2019. Overall foreign demand declined in Q1for the first time in almost a decade, with pronounced falls amongst northern European nationalities like the British and Swedes, whom Spanish banks prefer to lend to when it comes to foreign clients, as the paperwork and credit scoring is easier. It’s not hard to imagine that a percentage of potential foreign buyers will now abandon the idea of buying a home in Spain because getting a mortgage is simply too much trouble. Maybe lenders were already adjusting to the draft regulations in Q1, with might help explain the decline in foreign demand that period. I don’t know.

I asked Kevin Monger, a founding partner of Mortgage Direct, a company specialising in sourcing mortgages for foreign borrowers, for his thoughts on the subject.

“We have not noticed any change in foreign demand for Spanish mortgages yet, but I feel it’s too early to see any marked change,” he told me. “Banks are still getting to grips with the new laws, not least the situation where clients are not earning in Euros, as the general interpretation is that they can switch the mortgage currency to the currency of the earnings if the exchange rate goes against them by a certain margin. This is a huge risk and we will potentially see more conservative lending to those earning in GBP, USD, CHF, NOK, etc etc.”

Even if reports from the coal face of the mortgage market are not yet bad, Kevin added, “Things are changing by the day with banks formulating new policies – It promises to be an interesting time.”

Personally, I can’t see how forcing borrowers using mortgages to visit a notary ten days before completion will not have a significant negative impact on foreign demand.

Mortgage Stamp Duty Increases in Catalonia

Meanwhile, in Catalonia, the Regional Government has announced plans to increase mortgage stamp duty from 1.5% to 2% on all mortgages taken out in the region. This will distort the Spanish mortgage market, with higher borrowing costs in Catalonia than anywhere else in Spain. The move will increase setup costs by close to €800 on a typical loan of €125,000, calculate the CECA banking association. As most loans in Catalonia are €140,000 or more, the cost to borrowers will be even higher, as it all gets passed onto borrowers one way or another.

The rising cost and complexity of taking out a mortgage in Spain, especially in Catalonia, is likely to discourage a certain amount of foreign buyers at a time when foreign demand is already going soft. Bear in mind thar foreign demand is key to to some market segments on the coast and islands, and in cities like Barcelona, Madrid, and Palma de Mallorca.