Spain’s Banks Must Pay the Mortgage Tax from Now On

10 November 2018 – Expansión

The Royal Decree approved by the Council of Ministers last Thursday, which modifies the Law governing the Tax on Property Sales and the Documentation Registration Tax (ITP and AJD), comes into force today, following its publication in the BOE. The Decree establishes that the banks, and not the customers, are responsible for paying those taxes.

From today, the purchaser of an asset or right, and in his/her absence, the persons who initiate or request the notarial documents, or those in whose interest they are issued, shall be subject to the tax. When it comes to loan deeds with mortgage guarantees, the bank shall be considered the taxpayer.

In terms of new features, the Royal Decree introduces a new article in the exemption section, which means that “loan deeds with mortgage guarantees, in which the borrower is one of the persons or entities listed in section A) above” shall not be subject to the tax.

Those entities include the State and regional and institutional Public Administrations and their organisations for welfare, culture, Social Security, teaching and scientific purposes. Financial institutions will not be allowed to deduct this payment from their Corporation Tax charge from 2019 onwards, given that tax changes are applied to complete fiscal years. The tax that the banks will have to pay will amount to €2,500 on average per loan and will, according to the Minister for Finance, María Jesús Montero, contribute to the collection of €2 billion every year for the regional coffers.

The Government justifies the “urgent” need for “regulation” to dissolve the “legal uncertainty” created by the Supreme Court following its ruling to force banks to pay the tax, before resolving a few days later that it was returning to case law and therefore obliging citizens to pay it. “This succession of events has led to a situation of legal uncertainty, which affects the mortgage market as a whole, and which must be addressed immediately”.

Original story: Expansión

Translation: Carmel Drake

Gov’t Approves New Mortgage Bill That Favours Borrowers

7 November 2017 – Inmodiario

The Government has approved the Mortgage Bill, which transposes the corresponding European Directive and seeks to increase the transparency of mortgage contracts, according to explanations provided by the Minister for the Economy, Industry and Competitiveness, Luis de Guindos (pictured below, left).

In terms of the transposition, De Guindos said that the legislation has opted for the alternatives that are most favourable for the mortgage holder in every case. In this way, commissions for the early repayment of variable rate loans will be reduced, and even cancelled from the fifth year onwards; a maximum commission (cap) will be set for fixed-rate loans, compared to the current situation where up to two commissions may be applied, one of which has no kind of limit.

Moreover, the legislation establishes the right of consumers to change the currency of a loan taken out in a foreign currency to the domestic currency or any other; plus it prohibits cross-selling – which obliges the consumer to contract a series of financial products as conditions to obtaining a mortgage – and it regulates the legal framework for mortgage brokers.

The Ministry of Economy has said that the bill is not limited to simply transposing the EU Directive, but also responds to legal rulings that have expressed the need for greater transparency in terms of mortgage regulation.

In this sense, the legislation facilitates the conversion of variable rate mortgages to fixed-rate products, for both new mortgages as well as those already underway. The commissions for making such a change will be cancelled from the third year and the notary and registration fees will be reduced.

Other changes mean that the lender must provide the client with detailed documentation about the mortgage, including the most “sensitive” clauses and scenarios showing the evolution of instalments. Moreover, the borrower will be entitled to receive free advice from the notary about the contents of the contract for seven days prior to signing.

The legislation also regulates the early repayment of loans, “in such a way that it avoids any kind of discretion when it comes to agreeing this clause”, according to Luis de Guindos. The requirement for a financial entity to be able to initiate the foreclosure of a mortgage is extended to nine unpaid monthly instalments or an amount that exceeds 2% of the capital granted during the first half of the mortgage term; and 4% or twelve unpaid instalments during the second half.

Original story: Inmodiario

Translation: Carmel Drake

Moody’s: House Prices Will Rise By 4.7% p.a. Between 2017 & 2019

30 May 2017 – El País

The risk rating agency Moody’s expects house prices to rise in Spain by 4.7% per annum between 2017 and 2019, in line with their evolution in 2016. This will have a positive effect on the balance sheets of the banks and on the behaviour of mortgage securitisations.

Those are the conclusions of a report on the real estate sector in Spain, prepared by analyst Antonio Tena, which nuances these promising forecasts by reminding readers that the number of units sold is just as important as the price at which those units are sold for.

Even if GDP grows at a lower rate than currently predicted, the US agency believes that the rate at which it will likely close the year (2.3%) will undoubtedly sustain this recovery in house prices.

But it is important to “decouple” house prices from the number of operations, given that although the volume of properties is decreasing, it is true that some of the new homes (…) date back to 2006 and 2007 and still have not been sold”. However, those now account for just 10% of operations, well below the pre-crisis levels, when new and second-hand homes accounted for half the market each, reported Efe.

The agency also commented that there is no risk of “overheating” in the mortgage market, said Tena, or of a mortgage bubble happening, given that nowadays just one euro is being loaned for every four euros that were being loaned back in 2007.

Last week, the President of the European Central Bank (ECB), Mario Draghi, spoke along the same lines. He ruled out the danger of a new real estate or credit bubble in the euro zone.

The banks are now a lot more restrictive when it comes to granting a mortgage, said the Moody’s analyst, Antonio Tena. He added that it is important to distinguish between the granting of mortgages and the sale of homes; in 2007, more mortgages were granted than homes were sold, whereas, in 2016, the volume of house sales was much higher than the volume of mortgages signed.

The sale of homes is growing in a sustained way, at around 14% p.a., but that still represents half of the volumes sold in 2007; the data from Moody’s shows that house sales are not decreasing in any city where there are more than 200,000 inhabitants; and that Madrid and Barcelona – and their peripheral regions – as well as the Mediterranean arc, are accounting for most operations.

Borrowers are increasingly older

Another positive indicator, according to Tena, is that the average age of mortgage applicants has increased from 34 years in 2007 to 38 years in 2017. Borrowers now have a greater capacity for saving and financing. (…).

Along with the report about the mortgage market, Moody’s has published another study about covered bonds, which are known here as “mortgaged bonds”. The product plays an important role in Spain, given that for every euro of that type issued, there are €2.50 of mortgage loans, whereas, that ratio barely amounts to 1.10 in other countries. (…).

Original story: El País

Translation: Carmel Drake

Bankinter Revives Fixed Rate Mortgage War

9 June 2016 – Expansión

A new battle has commenced in the war between the banks to grant fixed rate mortgages. One of the most active entities in the commercial supply of these products, Bankinter, is redoubling its efforts. Yesterday, the bank announced widespread cuts in interest rates on its 5-, 10-, 15- and 20-year mortgages. Bankinter, whose fixed rate mortgages were already amongst the most competitive in the market, has cut the interest rate on its ten-year home loans from 1.75% to 1.6%; on its fifteen-year home loans from 2% to 1.8%; and on its twenty-year home loans from 2.3% to 2.1%.

The zero interest rate environment in the Eurozone has led the banks to offer fixed rate mortgages, given that 12-month Euribor, which is the index to which most floating rate mortgages are linked, is trading at negative rates (-0.018%). In this context, it is more profitable for the banks to offer fixed rate mortgages, given the limited margin they are able obtain on their variable rate products.

The main advantage for customers is that they know the amount of interest they will have to pay on the day they take out the mortgage; that figure is fixed and will not vary for the duration of the mortgage term. In other words, clients are protected against possible interest rate rises, although they would not benefit from any further hypothetical decreases.

Bankinter’s fixed rate mortgage has an arrangement fee of 1%, with a minimum of €350. It also charges a penalty of 0.5% during the first five years of the life of the loan in the event of its total or partial repayment, and of 0.25% thereafter, as well as a commission of 0.75% to offset the interest rate risk, in the event that the early repayment generates a loss of capital for the entity.

If Bankinter’s fixed rate mortgages are taken out to purchase a primary residence, then the value of the loan may not exceed 80% of the purchase price or appraisal value (the lesser of the two amounts). If the product is requested for a secondary residence, then the limit is 60% of the lower of those two values.

In addition, in order to benefit from these interest rates, the bank requires its borrowers to receive their salary into their Bankinter account, as well as to take out life assurance and home insurance with the entity. The applicable interest rates are higher if these products are not contracted.

The reductions also apply to the fixed element of Bankinter’s 15- and 20-year mixed (fixed and floating) rate mortgages, which decrease to 2% and 2.3%, respectively.

Original story: Expansión (by A.R.)

Translation: Carmel Drake

Deutsche Bank Lends €50M To RE Firm Aktua

18 April 2016 – Expansión

Deutsche Bank was involved in the largest direct lending transaction in Spain last year. Moreover, 2016 is only three and a half months old, but the same bank is already the lender in one of the largest operations of the year. And with the same borrower.

In 2015, the real estate services platform Aktua was the recipient of a €150 million injection, which Deutsche Bank granted to refinance its debt and allow it to pay a dividend to its owner, the fund Centerbridge. Within the next few days, the details will be finalised regarding the transfer of that platform to Lindorff.

Now, the German bank has increased its loan amount by €50 million. The aim is for Aktua to be able to finance the purchase of the management of Ibercaja’s real estate assets, which the company announced in February.

With these two operations, the financing that Deustche Bank has granted to Aktua, the former real estate subsidiary of Banesto, amounts to €200 million, which increases the volume of direct lending operations that the German bank has completed in Spain. “In the corporate segment alone, we have lent more than €500 million in two or three years”, explains Jesús Medina, Director of Structured Finance at Deutsche Bank.

That amount also includes the funds loaned to the chocolate company Natra at the end of 2015. The German financing entity entered into a syndicate of lenders after purchasing the firm’s debt from a Spanish bank in the secondary market, and as a first step, it participated in the restructuring that Natra needed to complete to survive. But the second step involved putting new money on the table to enable the chocolate company to do more than survive. And it did so in the form of a direct loan, together with another debt fund, amounting to around €20 million. “Our feeling is that there are operations in the market and that the structured financing segment is going to continue to grow, but we have to meet the needs of the moment and the windows of opportunity that arise”, added the executive.

Original story: Expansión (by I. Abril and D. Badía)

Translation: Carmel Drake

Bankinter & Popular Grant More High LTV Mortgages In 2015

19 October 2015 – Expansión

Over the last year, most of the listed banks have continued to reduce the volume of mortgages for which they finance more than 80% of the value of the property – the percentage that is regarded as the normal maximum for a primary residence -. During the six months to June, Spain’s eight listed banks granted mortgages of this kind amounting to €52,814 million, which represented a decrease of 3.7% with respect to the previous year. This type of product, which by its nature involves higher risk, is penalised by banking regulations, since the capital required to support it is greater than the amount needed for mortgages with lower loan to value ratios.

Only three banks increased the volume of these loans in the last year: Bankinter, Popular, and to a lesser extent, BBVA.

Bankinter recorded the highest increase, up by 32.7%, to €930 million. The entity says that the increase is due to an accounting change and that, without that effect, the increase would be around half (of that figure). It insists that it does not finance 100% of homes, except in very exceptional cases. Moreover, Bankinter stresses that these (high LTV) loans represent a small percentage of its total mortgage portfolio, just over 5%, which is well below the average for the sector.

In the case of Popular, the YoY increase of 23%, resulted in a total of €2,598 million. Sources at the bank attribute this increase to the initiative by the bank to sell its own homes. “These loans are granted to finance (the purchase of) homes from Aliseda (Popular’s real estate arm); otherwise, we only finance LTVs of up to 80%”. During the first half of this year, Popular sold own properties worth €1,172 million. Loans with a loan to value of more than 80% represent 15% of the bank’s mortgage portfolio. However, its default rate is almost half the sector average, at around 8%.


The other bank that recorded an increase in this kind of loan is BBVA, although the rise there was much more measured. The increase amounted to 3%, taking the loan balance to €13,903 million, i.e. 15% of its total stock. The entity explains that the increase was due solely to the incorporation of balances from the CatalunyaBanc group, which were included at the end of the second quarter. The former savings bank was acquired by BBVA free of all non-performing mortgages, as the doubtful loans had been sold to Blackstone. Nevertheless, the healthy mortgage portfolio contained lots of loans with high loan to value ratios.

All of the other listed entities reduced their stocks of this kind of loan during the last year. The most marked decreases were recorded by CaixaBank and Bankia, with -13.8% and -12.8% reductions, respectively. Sabadell’s stock decreased by more than 5%; Santander by 3%; and Liberbank by almost 2%. The bank led by Ana Botín is, nevertheless, the one that accounts for the greatest number of these loans over its total mortgage portfolio, with more than 27%.

Selling their own homes

The banks insist that they do not offer these mortgages for third party assets. They only do that in very exceptional cases when the borrower is very solvent or has guarantors, or is able to offer a double guarantee.

By contrast, they do offer this kind of mortgage on a mass scale to sell their own homes. In this case, the entities prioritise their aim to reduce the volume of properties on their balance sheets and to do this, they offer clients added benefits. In fact, these mortgages tend to not only have a higher loan to value ratio, they are also cheaper and are less onerous on clients in terms of contracting other products (from the same bank). (…).

Original story: Expansión (by Michela Romani)

Translation: Carmel Drake