Oliver Wyman: Mortgage Lending Will Triple By 2020

7 September 2016 – Expansión

Oliver Wyman warns that the banks are once again “relaxing” their criteria for granting home loans.

There is no going back in terms of the re-awakening of the real estate market. All indicators are pointing in favour of a recovery in the sector: GDP is enjoying annual growth of 3.2%, interest rates remain at historically low levels and the banks have started to ease their criteria for lending money in light of the need to give their income statements a boost.

In this context, the consultancy firm Oliver Wyman forecasts that the number of loans granted for house purchases will triple over the next five years to reach 550,000 signings per year by 2020. That figure would be equivalent to the constitution of 1,500 new mortgages per day, up from the current figure of 600 per day.

Behind this recovery in the real estate sector is a forecast acceleration in the creation of new households – the reduction in the level of unemployment will allow, amongst other things, young people to move out of the family home sooner – as well as the demand for homes that has been pent up during the crisis, which could amount to almost 300,000 homes. This last case involves households who have been waiting to buy a property for years, but who have not taken the plunge yet as they wait for the economic environment to improve and the price per square metre to stop falling. (…).

Oliver Wyman considers that its forecast for mortgage signings by 2020 represents the “equilibrium level” for an economy of the size of Spain’s. In other words, according to this company, the signing of 1,500 home loans per day would not result in the creation of a new real estate bubble like the one seen between 2005 and 2007. Between those dates, 1.3 million mortgages were signed in Spain per year: one for every 35 inhabitants.

Nevertheless, the financial consultancy does warn of a number of risks that could damage the local property market. They are linked to the worsening of the economic environment – in part due to the “political instability” that is paralysing the economy – , a sudden increase in Euribor combined with the gradual withdrawal of monetary stimulus at the world level – which would make monthly payments more expensive and which would increase the rate of default – and the granting of more credit to clients with higher risk profiles.

In this sense, the banks are now under pressure to stimulate their mortgage businesses to boost their income statements and face up to the growing competition from new digital agents who are increasingly operating in the sector.

The real estate market is still purging the excesses left over from the first decade of the century. During the second quarter of this year, 20,927 mortgages were foreclosed, which represents a reduction of 27% compared with the same period last year.

Of the total assets foreclosed, 57.1% were homes, and 30.6% of those were primary residences…according to figures published yesterday by Spain’s National Institute of Statistics (INE). In terms of the status of foreclosed homes, 13.6% were new homes, down by 25.1%, and the remainder (86.4%) were second-hand homes, down by 31.2%.

Original story: Expansión (by Victor Martínez)

Translation: Carmel Drake

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