Archive for the ‘Financial & Mortgages’ Category


October 9th, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell 5.5% in September to a new record low of 1.261%. Euribor has now fallen for 12 consecutive months, and is 77% lower than it was a year ago.

Monthly repayments on the average annually-resetting mortgage (150,000 Euros, 30 years, Euribor +0.85%) will drop by around 435 Euros a month, or 4,150 Euros a year, to 555 Euros/month. However, many borrowers will not benefit thanks to clauses in their contracts that set a floor for interest rates.

There were 58,995 new residential mortgages signed in July, 19% less than a year ago, according to figures from the INE. In the first 7 months of the year new mortgages were down 30% compared to the same period last year.

The fall in new residential mortgages appears to be bottoming out (year-to-date in May -35%, -31% in June, and -30% in July). In value terms, new mortgage lending fell 34% to 6.7 billion Euros in July, or 41% in the first 7 months of the year.

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September 1st, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell to a record low of 1.334 percent in August, down from 1.41 percent in July. Euribor is now 75 percent lower than it was this time last year, when it stood at 5.323 percent, leading to significant savings for mortgage borrowers on annually resetting mortgages.

After the fall in August, Euribor has now fallen for eleven consecutive months, setting a new record low in each of the last 6 months. Euribor has gone from record high to record low in the space of a year. However, mortgage experts do not expect Euribor to drop much further from here, certainly not below 1 percent.

Thanks to the latest drop in Euribor, the average borrower can expect to save around 316 Euros per month, or more than 3,800 Euros per year, on mortgages that reset around now. But consumer groups have complained that many banks are not passing on falling rates to customers, using the opportunity to raise the margins they charge borrowers.

Nevertheless, Spanish consumer group CECU has urged borrowers to use the fall in base rates to try and remortgage, noting that the number of people doing so is up nearly 65 percent compared to last year. CECU has also called on borrowers to report banks for including illegal clauses in mortgage contracts.

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August 31st, 2009

The number of new mortgages signed in June rose by 7.2% compared to May, suggesting that the mortgage market may be starting to recover from the credit crunch. Optimists argue this will breathe life back into the property market.

On a year on year basis, however, new mortgages signed in June were still 10.8% below the same month last year, showing that the market still has some way to go before it recovers to former levels.

These figures, from Spain’s National Institute of Statistics, also reveal that accumulated new mortgage signings were down 31% in the first 6 months of the year compared to the same period last year.

By value, new mortgages in June fell 6% year on year, but rose 4% month on month.

The average value fell 10% year on year to 142,700 Euros, but was up 5% on the previous month. In some regions, especially those where property prices are highest, the fall was more drastic. Average mortgage values fell 19% in Madrid, and 25% in Barcelona.

Average mortgage values are also down heavily in popular holiday home destinations like Malaga (Costa del Sol), down 24.5%, and The Balearics, down 30%.

The average interest rate was 4.47%, 13.8% lower than a year ago and 2.9% lower than the previous month. This figure shows that banks are passing on only a fraction of the fall in base rates to customers. Base rates are down 70% compared to June last year.

The average monthly mortgage payment has fallen from 845 Euros in June 2008, to 702 Euros today.

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July 21st, 2009

Spain’s central bank has bowed to pressure and relaxed provisioning rules for lenders in a move that could help some banks avoid losses next year and allow others to strengthen their capital ratios.

The Bank of Spain yesterday confirmed that it had advised all banks that they would no longer have to set aside the full value of high-risk mortgage loans – those for more than 80 per cent of a property’s value – after two years of arrears.

Instead, they would only have to provision for the difference between the value of the loan and that of 70 per cent of the mortgaged property. In the case of a mortgage for the total cost of a new home, for example, banks would provision for 30 per cent of the property’s value. But the central bank also warned banks to ‘update’ their Spanish property valuations.

Although the regulator has long recognised the ‘residual value’ of mortgaged properties at 70 per cent, its schedule of provisioning for riskier loans in effect forced lenders to assume that a 100 per cent mortgage was irrecoverable after two years of nonpayment, against six years for most other credits.

The assumption was typical of a regulator whose tough stance on off-balance sheet investment vehicles saved Spanish lenders from the worst effects of the US subprime crisis. Its insistence on precautionary bad loan provisions has also allowed them to withstand the collapse of the domestic housing market about two years ago.

But the non-performing loan rate for the financial system has almost quadrupled in the past year, to 4.27 per cent of total assets, and is much higher at some of the caja, or weaker savings and loans banks.

Recent estimates put the value of property repossessed or swapped for debt by Spanish banks at about €16bn ($22bn, £14bn).

In April, the Bank of Spain took over a caja based in the Castilla La Mancha region. Another two recently announced they were in merger talks. The government, meanwhile, is setting up a bank restructuring fund which it says will provide up to €90bn for rescue operations. Lenders have welcomed the new provisioning criteria.

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July 16th, 2009

Spain’s economy is likely to have shrunk ‘substantially’ less in the second quarter than in the first, though growth will remain negative to the end of the year, the economy secretary was quoted on Monday as saying.

‘We don’t have a precise estimate, but we believe that the fall (in gross domestic product) will be substantially less than in the first quarter,’ Jose Manuel Campa said in an interview with the financial daily Cinco Dias.

‘Until the end of the year we will continue to have negative growth rates, but increasingly smaller ones.’

Spain’s economy shrank 1.9 percent in the first quarter from a quarter earlier, its sharpest contraction in half a century – most acutely felt in the Spanish property market. Savings bank foundation FUNCAS said on Monday the worst may be over.

‘Available data point to a less abrupt contraction in the second quarter than the previous two quarters,’ Funcas said. Talk of economic recovery may be premature, the foundation said.

‘The worst may be over, but that doesn’t mean the economy will recover soon, just that the recession will be less intense,’ Funcas said.

The Spanish economy would shrink by 3.6 percent in 2009 and 0.6 percent in 2010, according to consensus figures published by the foundation on Monday.

The Spanish government has launched one of the world’s largest economic stimulus packages in relative terms which has inflated a ballooning public deficit likely to rise above 10 percent of GDP this year from 3.8 percent in 2008.

Campa reiterated the government’s target to cut the deficit to below 3 percent in 2012 in line with European Union recommendations.

‘It is our commitment to the European Union and we meet our commitments,’ he said. ‘Obviously, it is not easy, but it is feasible.’

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July 7th, 2009

The European Central Bank will keep interest rates at a record low for more than a year and may yet need to expand its use of unconventional tools as it battles the worst recession since World War II, economists said.

ECB officials meeting in Luxembourg will leave the benchmark rate at a record low of 1 percent, according to all but two of 60 economists in a Bloomberg News survey. The central bank, led by President Jean-Claude Trichet, may keep the rate there until the fourth quarter of 2010, a separate survey shows.

The ECB last week lent banks a record 442 billion euros ($621 billion) for 12 months at its key rate in the hope they will pass on cheaper credit to companies and households. It will also start buying 60 billion euros of covered bonds this month to encourage lending. Trichet may today unveil further details of the plan, which was a compromise after policy makers failed to agree on a package twice that size.

“The ECB is pretty much done with cutting rates,” said Guillaume Menuet, an economist at Bank of America-Merrill Lynch in London. “However, they are very concerned about credit developments. If there is no improvement by October, the debate about expanding the asset purchases will resurface.”

The ECB, which holds Governing Council meetings twice a year away from its Frankfurt headquarters, announces its rate decision at 1:45 p.m. and Trichet holds a press conference 45 minutes later.

The central bank for the 16-member euro region has been reticent to follow the examples of the U.S. Federal Reserve, Bank of England and Bank of Japan, which have lowered their main rates to close to zero and are buying government and corporate bonds to reflate their economies.

The ECB, whose key rate is still the highest among the Group of Seven nations, has focused instead on getting credit flowing through the banking system again, arguing that two thirds of its economy is financed by banks.

Even so, loans to households and companies in the euro area grew at the slowest pace on record in May as the recession crimped demand for debt and prompted banks to tighten credit standards.

While the ECB’s measures have stabilized the banking sector, “they have not, at this stage, succeeded in pushing credit into the real economy,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. That could be achieved by buying corporate bonds, he said.

The ECB initially considered a package of asset purchases worth 125 billion euros that included corporate bonds and commercial paper, according to people briefed on the talks. Germany’s Axel Weber opposed buying assets of any sort. Other ECB officials, such as Athanasios Orphanides from Cyprus, have said more may need to be done to temper the risk of deflation.

Consumer prices fell 0.1 percent in June from a year earlier. That’s the lowest inflation rate Europe has seen since 1953, according to Royal Bank of Scotland. The ECB predicts the euro-region economy will contract about 4.6 percent this year.

“The primary goal should be to restore economic growth as fast as possible,” ECB council member Ewald Nowotny said at a conference on June 16. “It is necessary to use all possible means to secure a recovery,” he said in a June 19 interview, adding he expects interest rates to stay on hold into 2010.

Some policy makers are more worried that the stimulus being provided by central banks and governments will sow the seeds of future inflation. Deflation risks “are extremely limited,” ECB Executive Board member Juergen Stark said June 25. The bank will “swiftly” withdraw additional liquidity when the economy improves, he said.

There are signs that the worst of the recession may be over. The contraction in Europe’s services and manufacturing industries is slowing and confidence in the economic outlook rose to a seven-month high in June.

“The economy certainly won’t prompt any more ECB action for now,” said Aurelio Maccario, chief euro-area economist at Unicredit Group in Milan, who expects the ECB to keep rates on hold until the end of 2010. “However, if credit flows don’t start improving, Trichet will have to put his thinking cap on again in a few months.”

Story from Bloomberg

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July 6th, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell to an all time record low of 1.61% in June, down from the previous record low of 1.644% in May. This will bring relief to borrowers on annually resetting mortgages.

On a daily basis Euribor finished the month at 1.504%, another all time low, suggesting that Euribor’s downward trend has not yet run out of steam.

After the latest fall, Euribor is now 70% below where it was in June 2008. That means savings of around 3,400 euros per year for the average borrower with a mortgage resetting now.

A year ago the average mortgage value was 141,939 euros, according to the National Institute of Statistics (INE). With Euribor then at 5.361%, 3.75 points higher than today, monthly repayments on the average 25-year mortgage were around 860 euros. Today the repayments should have fallen to around 575 euros, a saving of 284 euros a month, or 3,400 euros a year.

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June 3rd, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell from 1.771% in April to 1.644% in May, a percentage change of -7.2% month to month, and -67% year to year.
After eight consecutive monthly declines, repayments on the average annually resetting mortgage based on Euribor will fall by 2,280 Euros a year.

According to the National Institute of Statistics, the average Spanish mortgage is 119,000 Euros, Euribor +.075%, with a 26 year term. Monthly repayments on mortgages resetting to May’s Euribor will fall by 223 Euros to 512 Euros per month, a major relief for many of Spain’s hard pressed borrowers.

Euribor has started June with further falls.

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May 16th, 2009

* House sales fall at slowest pace in 11 months

* Follows improvement in March mortgage lending

Spanish house sales fell at the slowest pace in 11 months during March, the National Statistics Institute reported on Tuesday, marking the latest data to suggest Spain’s severe recession may be easing.

Home sales fell 24.3 percent to 34,895 in March in what was the 13th straight month of decline, but well below rates of 37.5 percent in February and 38.6 percent in January, INE reported.

The March result was the slowest rate of decline since April 2008 and followed Bank of Spain data showing banks lent 7 billion euros in March for mortgages, the most since July 2008.

Economists expected the sales trend to continue as real estate firms and banks repossess homes due to soaring debt defaults and put them on the market at ever lower prices.

“It’s not that things are improving, there’s just less deterioration,” said economist Carlos Maravall at the AFI consultancy. “We’ve had a very sharp fall in terms of house sale numbers and what remains to be seen is a price fall.”

March housing results were flattered by the statistical impact of a sharp, 39 percent fall in March 2008 sales and the fact Easter fell in March last year.

But they mirrored data showing a slowdown in the rate of decline in April service and manufacturing sector activity, as measured by the Markit Economics Purchasing Managers’ Index.

Spain’s Socialist government last week said it saw green shoots of economic recovery after Spanish consumer confidence hit a year high in April as new jobless claims rose at their slowest pace in nine months.

The International Monetary Fund expects Spanish house prices to fall 30 percent from peak to trough and estimates Spain is around half way through that process.

Story from: Reuters

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May 15th, 2009

As part of a raft of useless gestures to deal with the economic crisis, José Luis Rodríguez Zapatero, Spain’s Socialist Prime Minister, has announced that mortgage relief will be eliminated on mortgages taken out after 2011 by borrowers with incomes of 24,000 Euros or more.

The measure is supposed to stimulate the housing market by giving buyers a reason to bring forward their purchase, rather than wait and potentially lose their right to mortgage relief.

If it were to succeed, this would help mop up Spain’s housing glut of 1 million new homes, and eliminate a fiscal incentive to buy rather than rent, something that organisations like the IMF and OECD have been calling for for some time.

Zapatero announced the measure during the annual state of the nation debate in Parliament this week as a way to deflect attention from Spain’s economic problems. In typical Zapatero style it was presented as a ‘progressive’ measure that only hits ‘high earners’.

In reality, however, the plan hits the middle class, and given property prices and incomes in Spain, will affect almost anyone with enough money to buy a home. Mortgage relief will be reduced after 17,000, and eliminated after 24,000 Euros income per annum.

The opposition leader Mariano Rajoy called it an “attack on the interests of the middle classes” and said his party would retain and increase mortgage relief to stimulate the market.

Developers have criticised the plan, calling it a negative stimulus. Though it may help them shift some stock in the short run, it will harm them in the long run, reducing the incentive for people to buy homes from developers.

Some experts are claiming that banks will be the biggest, and possibly only beneficiaries of this measure. “The banks are the ones with the key to financing and with the cheapest property,” Eduardo Molet, President of the Network of Property Experts, told the Spanish press. “But thinking that the banks will sell their stock rapidly is a mistake, as their product isn’t exactly the best,” Molet points out.

Mortgage relief in Spain is only available to residents with mortgages on their primary residence. As such, Zapatero’s plan will have little impact on the second home market on the coast. Nevertheless, it could affect Britons and other foreigners relocating to Spain and buying a main home with a mortgage, if they have incomes above 17,000 Euros per annum.

Eliminating mortgage relief does little to address the real problem of the Spanish property market, namely that too much inappropriate, unattractive, and overpriced property has been built, especially on the coast.

Story by: Mark Stucklin

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