Article by Spanish mortgage specialist Howard Steel of Mortgage Direct, a mortgage broker that focuses on arranging mortgages for foreign borrowers.
Needless to say, it’s been an interesting year in the Spanish mortgage market so far…
Amazingly the demand so far this year has been huge, in fact we’ve just had our record month for mortgage enquiries. The main drivers we continue to see are based on wider economic concerns, attractive lending conditions, tax efficiency, the impacts of mortgage regulation and, more than anything, changes in the way we work.
Put simply, we are living and working differently. There has been a shift from enquiries predominantly focused on second residences to those from people looking to live or spend more time in Spain.
This change in consumer trends amongst foreign borrowers is one of the factors helping the market recover after the Covid downturn, with an overall increase in new lending of almost 20% in Q1, as you can see from the chart below.
At Mortgage Direct we’ve seen a 60% increase in initial mortgage enquiries in the last quarter compared to pre-Covid levels, and with that we’ve also seen a 30% increase in the number of main residential enquiries proceeding to full application. This could be an increase in our market share, but there’s no doubt that the demand to buy in Spain is still strong, with property listing sites also reporting a surge in demand.
This year we are seeing another downward turn in mortgage rates as competition heats up between the banks. For Spanish tax residents we have seen fixed rates as low as 1.15% for the term and variable rates of Euribor + 0.89% giving a payable rate of just 0.4% at the current negative Euribor rate. Non-resident rates are only marginally higher, with fixed rates of 1.2% and variable rates of Euribor + 1.05%.
Banks continue to bend the rules in relation to combined products (whereby the best interest rates are reserved for clients that take out additional products with the lender). We expect this to become a hot topic as we move into a different phase of regulation, speaking of which…
What continues to be a hot topic is the ‘Ley Hipotecaria’ (new mortgage law). It’s clear that banks are still struggling to come to terms with the mortgage regulation despite us being on the verge of its 2-year anniversary. Having said that, we are advised that the Bank of Spain is now moving from implementation to regulation and as such will be monitoring the activities of regulated entities such as ours and will begin clamping down on intermediaries that continue to operate outside the rules, of which we hear there are many.
The mortgage law continues to have an impact on the range of products available for non-Euro earners seeking finance in Spain. You may already know that, in order to protect consumers from exchange rate risk, banks must offer clients the option to convert their mortgage from Euros to the currency in which they earn should the exchange rate differ by more than 20%. This led to some banks withdrawing their products for non-Euro earners and others limiting their product range. Most banks have now decided which currencies they are comfortable with but at the time of writing, both variable and fixed rate mortgages are still available to clients earning in the main currencies.
We look forward to updating you further on this constantly evolving situation, especially as travel begins to open up, and we start to see if the increase in enquiries leads to completed transactions. You can find out more about our services and get in touch at our website Mortgage Direct.