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Fitch: Banks Are Selling Homes With Record Discounts Of 65%

27 October 2016 – Expansión

The housing market is improving, supported by the strong macroeconomic outlook. Nevertheless, this increased optimism is not being reflected in the prices at which banks are selling their foreclosed properties.

According to a report from Fitch Ratings, which will be published today, banks have continued to sell homes during the first half of the year at prices that represent an average discount of 65% on the original appraisal value – the highest ever. “This is because the majority of the assets that have been sold recently are lower quality products, those for which demand was lowest during the worst years of the crisis”, explains the report prepared by the ratings agency’s analysts Christian Gómez, Juan David García and Beatriz Gómez. And the outlook is not much rosier. In Fitch’s opinion, there will only be a reduction in the discounts being applied to these assets if the recovery in the housing market improves significantly.

In this sense, Fitch highlights the role being played by the servicers and other firms that specialise in the management of these types of assets. Specifically, the banks sold the managers of their real estate portfolios to funds such as Apollo, Värde and Cerberus. They now operate as independent firms in the financial sector and “they have had a positive influence on the management of residential mortgages and on the real estate sector in general since they entered the market three years ago”, said Fitch.

“They will have an increasingly strong influence in Spain due to their competitive advantages (more technological capacity and international experience) than the banks”, it added. Fitch estimates that between €20,000 million and €30,000 million of problem assets relating to the real estate sector are now being managed by these platforms, which prefer to reach a consensus with the borrower before pursuing legal channels.

Potential for more lending

The ratings’ agency noted that new mortgage lending grew by 38% during the second quarter of the year compared with the same quarter last year, thanks to the economic recovery and the improvement in financing conditions. Fitch expects this trend to continue because the total volume of credit currently represents just 30% of its pre-crisis levels, and other factors are also at play. This recovery is significantly lower than that seen in other countries, such as Italy, Germany and France, whose credit volumes now represents 80% of their pre-crisis levels.

Original story: Expansión (by D. Badía)

Translation: Carmel Drake