The Bank Makes Credits Easier And Mortgages Cheaper

1 September 2015 – Expansión

FINANCING/ Institutions relax control over granting consumer credit. The price of mortgage loans goes down, although the criteria for getting approval remain unchanged.

Consumer credit has become a key pillar in the growth strategy of financial institutions. In an environment of interest rates at historic lows in which bringing in profitability gets important to sustain balance, the bank makes the criteria for granting credits for consumption and other purposes more flexible.

As follows from the Bank Lending Survey of July, coordinated by the Bank of Spain, which reflects opinions of 10 financial institutions, “in the segment of household loans for consumption and other purposes, approval criteria relaxed slightly between April and June 2015, mainly due to the increased competition and improving economic prospects. “It is the first time since the first quarter of 2014 that the conditions are smoothed out”, says the report regulator. “The standards for approval of loans for home purchases remained unchanged in Spain, while in the euro area they were lessened.”

The institution led by José María Linde makes its assessment: “The improved economic expectations could have induced less restrictive criteria [in the granting of mortgages], but its variation would not have been sufficient for institutions to change their credit policy.”


Still, the Spanish mortgage market is leading a sustainable recovery and housing sales increased by 26.3% in June YoY, according to the National Statistics Institute (Instituto Nacional de Estadistica, INE) (see page 16). And, although risk controls to approve mortgage loans do not loosen, it is a fact that competition has resulted in cheaper loans with interest rates of about 1.5% over Euribor (see the chart).

This price reduction is precisely one of the factors that make consumer credit a key product for the improvement of profitability of banks. “As institutions/authorities we need to improve margins and consumer credit is much more interesting than the mortgage. While the former applies  average interest rates of 8%, mortgages are being granted 200 points over Euribor, “says Enrique Barbero,of Ibercaja.

The new family credit operations continue to rise, with a growth of 37,6% YoY accumulated in the seven months of the year, equivalent to 60,978 million, according to the Bank of Spain data collected by BBVA Research. Of these, 26,817 million were for mortgage operations, 16,441million for consumer credit and 17,720 for other purposes. Moreover, if compared with the same month of 2014, data from last July showed increase in new operations exceeding 62%, with more than 9,000 million in loans granted to the households. “This is clearly a positive trend,” concludes BBVA.

Original story: Expansión

Translation: Lee La