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BBVA, the First Bank on the Iberian Peninsula to Return to Financing 100% of Property Values

2 April 2018

BBVA recently began advertising mortgages that will cover 100% of a property’s value, or even more than 100% of the bank’s valuation should the selling price exceed that figure. The Spanish bank’s move is a part of its strategy to attract clients.

Spain’s BBVA has taken another step in its strategy of attracting customers and in recent weeks has offered mortgages that cover 100% of a property’s value, or even more, than 100% of the bank’s valuation should the selling price exceed that figure. It has thus become the first bank on the Iberian Peninsula to offer such conditions, which until now had only been offered, on a very limited basis, to specific clients who were acquiring foreclosed properties from the banks themselves, a major burden on the banking system, El Economista reported.

Currently, there are no banks in Portugal offering financing with these conditions. The practice of offering mortgages for the full value of the property had been common before the financial crisis.

This type of mortgage, which central banks view as highly risky, were commonly granted by every financial institution during the pre-crisis housing boom and was one of the causes that led to the sector’s collapse as the property bubble burst, particularly in Spain.

The recovery of the economy and construction, coupled with the bank’s need to increase profitability through an increase in volume, led BBVA to change its policy.

The bank offers scaled mortgage rates based on the clients’ monthly income, or, in other words, on their ability to pay (effort rate). Currently, the rate is based on the financing application’s perceived loan to value (LTV), that is, the ratio of the mortgage as a percentage of the total appraised value of the property, El Economista reported.

The scaled rates apply to both variable rate and fixed-rate mortgages. In the first case, which is encouraged due to expectations of an increase in interest rates starting in 2019, BBVA offers Euribor plus a spread of 0.99%, except in the first year, if the LTV is less than 80%. If the loan exceeds that percentage, the spread rises to 1.25%. The bank also allowed for the possibility of arranging larger loans for housing acquisitions, where mortgages could be complemented by consumer or personal loans.

BBVA’s increased flexibility in its lending policy comes with more stringent requirements. Customers, to contract loans with these types of conditions, must pay loan instalments directly out of their payroll or pension payments must have life insurance, home insurance and a pension plan with a minimum annual contribution of 600 euros. In cases where the LTV exceeds 100%, the bank may require additional guarantees, beyond the mortgaged property, to guarantee the bank’s investment in case of default.

Original Story: Jornal Econômico – Maria Teixeira Alves

Photo: Susana Vera / Reuters

Translation: Richard Turner