Moody’s: The Average LTV on Residential Mortgages Amounted to 64.6% in Q1 2019

30 May 2019 – El Diario

According to the latest data from INE, more and more people are taking out a mortgage to buy a home in Spain. 30,716 mortgage contracts were signed in March, up by 15.8% YoY.

Many buyers are attracted by rising house prices (investment growth), which the ratings agency Moody’s considers is something “positive”. However, with personal savings rates in freefall, banks are having to lend more than ever to enable families to afford their homes.

Specifically, the percentage that the loan granted represents over the appraisal value of the property (LTV) amounted to 66.5% in Q4 2018, its highest figure ever. That figure moderated slightly to 64.6% in Q1 2019 but many families are now asking to borrow 65%-70% of the value of their homes, which means a greater risk for banks and a higher probability of defaulted payments.

According to Moody’s, whilst a portfolio with an average LTV of more than 80% has a default rate of more than 6%, a portfolio with an average LTV of less than 60% has a default rate of 1%.

Nevertheless, although some banks are now lending mortgages with LTVs of 100% in certain cases, the percentage of loans with LTVs of more than 80% is lower than it was before the crisis. Such mortgages currently account for 13.1% of the total compared with 17% in 2006.

Moreover, according to Moody’s, mortgage borrowers are better off today than they were at the outbreak of the crisis as they are in a better position to afford interest rate rises and other changes in the market thanks to the strict criteria that the financial entities have applied when granting loans in recent years.

Original story: El Diario (by Marina Estévez Torreblanca)

Translation/Summary: Carmel Drake

Spain’s Housing Sector is Heading for Another Golden Cycle

6 February 2018 – Cinco Días

Ten years ago, the largest real estate bubble of the democracy was about to burst, and although it was not the first, it was by far the most spectacular:  not only were residential property prices extremely high, everything relating to property was excessive: the volume of homes built, the amount of credit granted and the number of sales recorded. And although there were those who warned that the bubble would burst and the consequences would be dire, no one guessed how dramatic they would actually be.

Now, a decade later and four years after the recovery began, the consensus amongst analysts is that we are starting a new golden cycle that shares almost no similarities with the one that burst in 2008. The most optimistic observers even forecast five years of stable and sustained increases in house prices, as well as an increase in house sales and in the construction of new properties boosted by the global economic recovery.

In terms of prices, the forecasts for 2018 range between a conservative 3% increase and an average of 6% for the whole country. Nevertheless, regardless of the figure projected for the country as a whole, all of the studies agree that house prices will rise at different speeds this year. Madrid, Barcelona (but not the rest of Cataluña) and the Balearic Islands will clearly perform better than the rest, with price increases in the double-digits. And although they will record their fifth consecutive year of rises, prices will still be around 27% below their former peaks, on average, according to Eduard Mendiluce, CEO of Anticipa Real Estate.

The forecasts for this year are not surprising if we take into account the latest figures for 2017, relating to the third quarter, which show an annual increase in house prices of 6.7% YoY (…).

In terms of the areas that will see the most activity, Victor Pérez Arias, Managing Director of the international real estate fund manager ASG Iberia, says that the Mediterranean Arc will continue to account for a great deal of activity, spurred on by the pull of overseas demand (..).

According to the CEO of Servihabitat, Julián Cabanillas, given that more than 470,000 homes were sold in 2017, the psychological barrier of 500,000 is going to be exceeded again this year, something that has not been seen since the fateful year of 2008.

One of the determining factors in the return of house purchases to positive rates was the reopening of the credit tap. Nevertheless, access to financing is still a long way from the free bar decreed at the beginning of the 2000s. The granting of a mortgage now requires certain solvency criteria, which forces future borrowers to have savings – and that requirement was avoided in the past on too many occasions. This prudence on the part of the banks is one of the keys that, according to the experts, differentiates this cycle from the previous one and distances the ghost of a new bubble.

In fact, the CEO of Sociedad de Tasación, Juan Fernández-Aceytuno, says that whilst the volume of mortgages granted is considerably below the volume of purchases, the market will be healthy and that is what happened in 2017. With the official figures yet to be published, all indications are that around 470,000 house purchases were recorded in 2017, whilst the banks granted no more than 320,000 mortgages (…).

The previous crisis also hit property developers hard, given that demand was stopped in its tracks from 2008 onwards, following the outbreak of the global economic crisis, whereas just two years earlier, the number of new housing permits had set a new record, with more than 800,0000. Numerous companies had started projects without any presales, convinced that they would sell all of the units quickly. Given that it takes between 18 and 24 months to build a housing development, many buildings were finished only to spend years unoccupied. In this way, construction was suspended, above all, from 2009 onwards and even today, just 10% of the record volumes reached twelve years ago are being built.

Nevertheless, given that in the large cities and certain areas along the Mediterranean Coast, the absorption of stock has evolved at a good pace in recent times, for the experts, it seems that the time has come to increase the rate of construction once more. That is what the National Director of Residential and Land at CBRE, Samuel Población, thinks. He expects the supply of new homes to start to increase from the end of this year, although its impact will be greater in the second half of 2019. That consultancy firm is sure that despite this rise in supply, prices will not increase by less than 5-6%, with Madrid, Barcelona and a large part of the coast as the most dynamic markets (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

Moody’s Warns Of Higher Default Risk For Restructured Mortgages

11 November 2016 – Expansión

Yesterday, the ratings agency Moody’s issued a warning about mortgages that are being restructured, which represents an increasingly larger pool, thanks to the economic recovery and the proliferation of real estate management platforms. In the entity’s opinion, several variables may lead to an increase in the risk profile of these assets. Specifically, restructured mortgages are more risky when: the mortgage term is extended; grace periods are granted for the payment of interest or the repayment of the principal; interest charges are reduced; and other modifications are made.

This warning comes just a few weeks after Blackstone created the first securitisation fund in Europe containing restructured loans, amounting to €265 million. It created the fund using mortgages that it purchased from Catalunya Banc at the beginning of 2015. Nevertheless, it only included loans that borrowers have been repaying normally, without any help, for more than 37 months.

Analysts at Moody’s consider that foreign residents in Spain are twice as likely to default on their loans than Spaniards. “A defaulted payment by a foreigner on a Spanish loan does not have any impact on his credit history in his country of origin; and clearly, that reduces the incentive for him to seek solutions to repay his debt”, say the experts. In turn, the risk of default is 30% higher for borrowers who have restructured mortgages over secondary residences compared with those who have restructured mortgages over primary residences.

Moody’s has also conducted analysis by geographic region and in this sense, its results are clear: borrowers who have restructured mortgages for homes on the coast are almost twice as likely to default than borrowers with restructured mortgages in Madrid.

The default rate

Meanwhile, Axesor forecasts that the default rate for loans to families and companies will close the year at 8.96%, which would bring it below the 9% threshold for the first time since May 2012. The balance of doubtful debts amounted to €116,613 million in August, which represented a YoY decrease of 17.58%, and that figure is expected to continue to fall at a double-digit pace, which means that we could close the year with a doubtful debt balance of around €110,051 million.

Original story: Expansión (by D.B.)

Translation: Carmel Drake

Sareb & CaixaBank: The RE Recovery Is Proving “Selective”

6 October 2016 – El Mundo

Some of the main players in the real estate and finance sector, such as Sareb and CaixaBank, have commented that the recovery that will take place in the housing sector over the next few years will be “selective”. They call for “caution” because the “wounds” of the last decade “are still healing”.

That was one of the conclusions to emerge from the panel debate about financing in the real estate sector at the National Conference of the Association of Property Developers and Constructors in Spain (APCE), which is currently being attended by 400 professionals in Madrid (5 and 6 October).

The Chairman of Sareb, Jaime Echegoyen, has confirmed that although the recovery in the real estate sector is still “selective”, we are seeing “favourable signs that indicate that it is here to stay”. Echegoyen described the current situation in the real estate market as a “sweet moment” thanks to the “favourable factors” at play, such as low interest rates, the professionalization of the sector and growing demand, which is why he highlighted that “it seems like the real estate recovery will last”.

We are doing everything right between us, we have learned the lessons of the past and we are benefitting well from economic growth”, said the Chairman of the bad bank, who added that it is “a reflection of the past and of what we hope for the future”.

Nevertheless, Echegoyen encouraged the sector to work to avoid repeating the erroneous actions of the past, without falling into the trap of financing innovations and, he asked that players “exert caution and a watchful eye”, given that “low interest rates have helped a lot, but they may not last for long”.

In the same vein, the Director General of CaixaBank, Juan Antonio Alcaraz, said that “the wounds are still healing” and he pointed out that entities are still recording a “steady decline” in their mortgage loans to individuals, as they are not “able” to replenish them. Moreover, he criticised the new regulatory standards, such as the code of good practice for the sector, which “have profoundly changed the rules of the game in terms of the relationship between banks and borrowers”, and contributed to the decrease of the loan book.

Nevertheless, Alcaraz clarified that mortgages to individuals are rising at a rate of 50%, but from historical lows, and he explained that we are currently seeing a change in the way that mortgages are granted, with more importance being given to people’s borrowing capacity and to interest rates.

In terms of financing, he warned that the new online platforms that facilitate financing may mean that a time comes when “we tear our hair out”, just like in the past, when it comes to the “problem of regulating” these sources of financing.

In this sense, Alcaraz referred to the impact of changes such as the introduction of floor clauses and the suspension of evictions, which means that legal uncertainty sits at the top of the list of factors that may harm the sector, followed by regulatory and digital issues. (…).

Original story: El Mundo

Translation: Carmel Drake

Blackstone Creates Europe’s First Restructured Loan Securitisation Fund

4 October 2016 – Expansión

The US giant Blackstone is doing great business in Spain with the problem assets that it bought from Catalunya Banc at the beginning of 2015. And it is now going to set the cat amongst the pigeons with an operation that looks set to represent a golden solution for its competitors and Spain’s banks in general.

The firm has just created the first securitisation fund in Europe from restructured loans. It is a pilot test, involving €265 million of credits, but it will likely open the way for other Spanish entities to dispose of the majority of their problematic loans without having to sell them to vulture funds at knockdown prices.

Blackstone completed the purchase of Catalunya Banc’s problematic mortgage portfolio for almost €3,600 million in April 2015 – the portfolio had a nominal value of more than €6,000 million – that sale was a condition for BBVA to acquire the Catalan group. The purchase was structured through a fund to which Blackstone contributed €3,598.4 million and the FROB the remaining €524.9 million.

The well trodden path

Now Blackstone, which has spent almost a year “negotiating” with the CNMV to obtain approval for this operation’s prospectus, is selling these mortgages to qualifying investors through a traditional securitisation fund, like the ones created in Spain to finance the credit boom until the outbreak of the financial crisis, but with the difference, given that this time the fund involves restructured loans. In other words, it contains credits whose conditions have been altered to allow the borrowers to afford the repayments.

Financial sources explain that, rather than discounts of 70%, such as those being applied to the direct sale of portfolios through bilateral contracts between entities and the funds who are active in this niche of the market – such as Apollo, Lone Star and Centerbridge, as well as Blackstone – these mortgages may now be placed on the market with discounts of less than 10% for the most subordinated (higher risk) tranches.

Nevertheless, these portfolios contain loans that borrowers have been repaying for more than 37 months without any help, thanks to the economic recovery, in other words, they contain “high quality” problem loans. In total, they will generate returns of more than 100 basis points above Euibor and so represent an interesting alternative for investors looking to take on more risk in the almost-zero interest rate environment.

Original story: Expansión (by Daniel Badía)

Translation: Carmel Drake

Spain’s Banks Still Own €350,000M Of Toxic Assets

26 September 2016 – Expansión

Spain’s banks still have €350,000 million of problem assets on their balance sheets, which they must get rid of if they want to tackle another major problem that they are now facing: their lack of profitability. Most of them have already strengthened their capital to comply with the regulatory obligations demanded by the European Central Bank (ECB).

However, according to data compiled by the ratings agency Moody’s, based on statistics from the European Banking Authority and the Bank of Spain, the burst of the real estate bubble in 2008 and the subsequent financial crisis have left non-performing loans, properties and deferred loans, with a total value equivalent to one third of Spain’s GDP, on the entities’ balance sheets.

Approximately €140,000 million of the total €350,000 million accumulated on the balance sheets of the entities corresponds to non-performing loans or NPLs, whilst the rest is divided between assets such as property developments and land owned by the banks and loans whose recovery has been postponed because the borrowers have not been able to afford the repayments.

As a whole, this burden is reducing the banks’ ability to handle their other great problem: monetary policy at zero-interest rates. Between January and June 2016, the revenues of the banks listed on the stock market which decreased by 1.3%.

In order to resolve this problem, the large entities are having to resort to the market to get rid of their bad loans, albeit with average discounts of 30% on their original values. Various alternatives are being explored to this end, including the structure being prepared by entities such as Banco Popular, which will debut a subsidiary on the stock exchange containing up to €6,000 million of toxic assets. Other entities are packaging up and selling loans and properties to funds that specialise in their management. According to the consultancy firm Deloitte, Spain’s financial entities currently have problem assets worth €20,000 million up for sale.

The analysts at Moody’s consider that the rate of reduction in the non-performing loan balances of Spanish banks is clear for all to see. “But it is not as visible in terms of the volume of foreclosed properties or deferred loans, which are still classified as performing”, explain María Cabanyes and Alberto Postigo, analysts at the ratings agency. They consider that it is essential that these latter loan categories be included within the “problem” loan balance so as not to hide any of the risks.

Moody’s, which estimates that Spain’s banks have deferred loans amounting to around €100,000 million, highlights that on the basis of the transparency exercises performed by the European Banking Authority, Spain is one of the banking systems that is most exposed to the problems of toxic assets. (…).

For this reason, from 1 October 2016, a new calculation method for recognising provisions against these assets will come into force, imposed by the Bank of Spain. (…).

Original story: Expansión (by Daniel Viaña)

Translation: Carmel Drake

INE: Fixed Rate Mortgages Enjoy Unparalleled Popularity

29 July 2016 – Cinco Días

The mortgage market is not only on track to recovery, it is proving unstoppable. The enormous and increasingly attractive mortgages being offered by the banks to secure new clients are encouraging homebuyers. And that is being reflected in the figures. According to the property registers, the signing of new mortgages for the acquisition of a home recorded a significant YoY increase of 34.1% in May, to reach 26,579 contracts, an increase that was ten basis points higher than the rise recorded in April (24.6%) and twenty points higher than the increase in March. With the YoY rise in May, mortgages recorded 24 consecutive months of increases.

And the data reveal another important fact to keep in mind. It seems that the firm commitment of the financial institutions to fixed rate mortgages is working, with increasingly more clients choosing that option. 80.4% of the mortgages constituted in May had variable rates, compared with 19.6% that had fixed rates. Just a month before, in April, variable rate mortgages accounted for 85.2% of the total, whilst fixed rate mortgages represented 14.8%. But the increase in fixed-rate loans is unquestionable if we compare the latest figures with those from just a year ago. In May 2015, when 19,732 new mortgages were constituted, 92.8% of them were variable rate and 7.2% were fixed rate. In other words, the proportion of new fixed rate mortgages has almost tripled in one year.

And, in recent months, the financial institutions have shown a greater predilection for fixed-rate mortgages, given the low interest rate environment in which they are operating. And, what’s more, the battle to win clients is still very much alive and kicking, with some entities now offering interest rates of less than 2%. There are several examples: BBVA is offering 15-year fixed rate mortgages at 1.90%. Bankinter is offering 1.80% on its 15-year mortgages and 1.60% on its 10-year products. Meanwhile, Activobank’s promotional mortgage to celebrate its anniversary establishes a rate of just 1.50% over 10 years. (…).

With just two days left of trading before the end of July, the average Euribor rate currently sits at -0.057%, compared with -0.028% in June. Thus, the decrease in Euribor has doubled in just a month. (…).

According to the provisional data for May, provided by INE yesterday, which comes from public deeds signed in the previous months, the 26,579 mortgages that were constituted during the month represent an increase of 12.6% compared with the 23,607 signed a month earlier.

The value of those mortgages amounted to €2,776.9 million, up by 33.1% compared to a year ago and 8.6% higher than in April. The average mortgage loan amounted to €104,480, which represents a reduction of 0.8% compared to May 2015 and 3.6% compared to a month earlier. (…).

Original story: Cinco Días (by M. Calavia)

Translation: Carmel Drake

Pisos.com: House Prices Rose By 1.3% In Q1 2016

5 July 2016 – El Economista

The average price of second-hand homes in Spain amounted to €1,555/sqm in June, which represented an increase of 1.3% compared with December 2015, according to data from pisos.com, which show that the housing market experienced “good health” during the first half of the year.

Nevertheless, according to the CEO of pisos.com, Miguel Angel Alemany, citizens should continue to make a “significant effort” to become home owners, above all, at the beginning of operations due to the amount of savings that they require to cover the non-financed part of their purchases and the additional costs associated with property acquisitions.

“Monthly mortgage payments are more affordable than they used to be”, confirmed Alemany, indicating that fixed rate mortgage are providing borrowers with “more piece of mind” as they are able to enjoy fixed mortgage instalments for the duration of the repayment period. “Although Euribor is negative, fear of a possible increase in that reference index has made people much more cautious”, he added.

By autonomous region, the Community of Valencia (+4.49%), Galicia (+4.14%) and Aragón (+4.10%) recorded the highest price rises during the first half of the year, whilst the most marked price decreases were registered in País Vasco (-2.91%), Cantabria (-2.48%) and Andalucía (-1.82%). Meanwhile, the most expensive region in June 2016 was the País Vasco (€2,740/sqm) and the cheapest was Castilla-La Mancha (€952/sqm).

Original story: El Economista

Translation: Carmel Drake

Deutsche Buys €400M Developer Loan Portfolio From Bankia

4 July 2016 – Expansión

Deutsche Bank has reaffirmed its commitment to the Spanish real estate market despite instability in the markets caused by Brexit. Last week, funds from the German entity sealed the acquisition of almost €400 million in doubtful property developer loans from Bankia.

This is the second transaction of its kind that Deutsche Bank has signed with Bankia in just six months. At the end of 2015, it acquired just over €600 million in unpaid company loans, backed by real estate collateral. In this way, the German bank became the owner of at least one hundred loans linked to property that had originated on Bankia’s balance sheet.

Sources in the market estimate that Deutsche Bank could have paid just under €150 million for this latest operation, known as Project Ocean.

With these types of portfolios, funds are typically looking for loans that give them relatively easy access to real estate collateral, either through legal foreclosures or agreements with the borrowers.

These deals allow the vendor entities to reduce their default rates; lower their risk-weighted assets; generate gains, in some cases; and focus their resources on granting new, profitable, loans.

In fact, Bankia is close to completing another major divestment within the next few days, with the transfer of 2,500 flats to the fund Sankaty, the subsidiary of the US giant Bain Capital. These properties have been valued at between €300 million and €400 million.

A new star

This investor has become the largest purchaser of problem assets from the banks (in Spain) in 2016. In this way, in addition to Bankia’s portfolio, Sankaty signed another two acquisitions last week: Project Pirene, comprising €460 million in problem assets linked to property developers, from Sabadell; and Project Baracoa, containing 2,400 loans to bankrupt companies, worth €530 million, from Cajamar.

Sector sources say that these operations prove that investors are still interested in Spain, even through Brexit has made the financing of these purchases more difficult.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Bank Lending To Individuals Peaked In April

8 June 2016 – Expansión

The banks are stepping on the accelerator to sign new loan contracts. In April, the rate of new mortgages and consumer loans granted by Spanish financial institutions reached levels not seen since before the rescue (of the sector) in 2012. Nevertheless, new operations to large companies declined during the month, which meant that the total volume of new loans granted in April decreased by 7.9% to €34,600 million, according to data from the Bank of Spain.

In this way, Spain’s banks are clearly focusing on three areas to secure new business and whereby improve their returns:

1. Mortgages: the volume of new mortgages to buy homes amounted to €5,173 million in April, twice as much as last year and the highest monthly figure since December 2012. Even so, that figure does include renegotiations. If we exclude those, the amount of new money granted for mortgages during April amounted to €2,920 million, i.e. 45% more than during the same month last year and the second highest monthly figure in the last year. The banks hope to offset the low profitability of the mortgages granted during the years of the real estate boom with these new mortgages.

2. Consumer credit: Another segment that the financial entities are pushing hard is that of consumer credit, in light of the high interest rates being offered (c. 7.52%), according to the latest figures from the Bank of Spain. In this way, the financial sector granted €2,330 million of new financing to consumers in April, almost 50% more than a year earlier and the largest volume since May 2010.

3. SMEs: The financial sector is also focusing on its business with SMEs, where the banks are waging a battle to secure new clients. Nevertheless, the loan volumes there did not reach record levels in April – €11,710 million was granted, which was 14% more than a year earlier, but lower than the figure in December – like in the cases of mortgages and consumer credit, but the price at which new loans are being granted did, averaging 7.52%, the lowest level seen in recent months.

However, the banks have encountered a more complex panorama in the market for medium-sized and large business. Regarding the former, the volume of new loans grew by just 4% in April, whilst in the case of the later, the volume of loans granted declined by 40%. According to Fernando Alonso, Director of Companies and Corporations at BBVA, speaking in a recent interview, the “political uncertainty may well be delaying investment decisions at the corporate level”.

For the first time, the Bank of Spain provided data about renegotiations in its figures for April; it also gave details about loans to companies by amount; deferred credit card payments – also at record highs -; and overdrafts to households and companies.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake