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 has 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.

In Portugal, to date, there is no bank that is returning to these practices, very common before the financial crisis.

This type of mortgages, which central banks consider high risk, were granted by all credit institutions at the time of the credit boom and was one of the causes that led to the collapse of the sector, with the housing bubble (in Spain).

The recovery of the economy and construction, coupled with the need for the bank to increase profitability through an increase in business, led BBVA to give up its commercial policy.

Until now, the bank offered differentiated prices on its mortgages based on the clients’ monthly income, that is, based on their ability to pay (effort rate). Currently, this segmentation is focused on the financing request, known as Loan to Value (LTV), that is, the money that the client receives over the assessed value when acquiring any type of property for first address, says El Economista.

This differentiation applies to both variable rate and fixed-rate mortgages. In the first case, which is encouraged by the expectations of an increase in the price of money from 2019, BBVA offers Euribor plus a spread of 0.99%, except in the first year if the so-called LTV is less than 80%. If this percentage is higher, the spread increases to 1.25%. The bank also admits that solutions can be found if the client needs a larger loan to buy a home, which could be instrumented through the signing of a consumer credit or personal loan.

This greater flexibility in the lending policy leads, however, to more demanding conditions of association. Customers, in order to access the advantages of the loan, must have contracted not only the direct debit of the payroll or pension but must have a life insurance, a home insurance and a pension plan with a minimum annual contribution of 600 euros. In case the LTV exceeds 100%, the bank may require additional guarantees to the mortgaged apartment, in order to guarantee the recovery of the value granted, reports El Economista.

Original Story: Jornal Econômico – Maria Teixeira Alves

Photo: Susana Vera / Reuters

Translation: Richard Turner





Bank Of Spain: Loans To Families Rose In H1 2016

2 August 2016 – Expansión

First increase since 2010 / The appeal of consumer loans and lower mortgage repayments is leading to a change in the decreasing loan balance trend. However, business financing decreased due to the political uncertainty.

(…) The latest figures from the Bank of Spain and the financial institutions show that the trend in terms of credit is changing, which could make 2016 the year of recovery in the credit sector.

In this sense, loans to families across the sector grew by 1.04% in June and recorded a half year increase, of 0.02%, for the first time since the start of the crisis. In addition, eight of the eleven Spanish entities that have now presented their results, reported increases in gross loans to clients during the first six months of the year.

These figures show that for the first time, the volume of new loans granted by the entities exceed the volume of repayments, thanks to the liquidity measures led by the European Central Bank (ECB) and the need for entities to grow volumes to offset their decreasing margins.

The last time that Spanish financial entities increased their total loan balance to families was during the first half of 2010, when the international financial crisis had not yet reached the Spanish sector.

In this way, families then held financial debt with Spanish banks amounting to €724,100 million, i.e. €117 million higher than the €723,993 million balance at the end of 2015.

Boost from consumption

This rise comes mainly due a boost from consumer credit in recent months, thanks to the economic recovery and the gradual reduction in unemployment. In this way, the outstanding consumer loan balance increased from €162,000 million at the end of 2015 to €171,00 million at the end of June 2016.

This €9,000 million growth offset the incessant deleveraging of households away from mortgages, which have decreased from more than €549,000 million in December last year to almost €541,000 million at the end of the first half of this year. In other words, a difference of €8,000 million, below the growth in consumption.

These figures reflect a deceleration in the decrease of the outstanding mortgage balance, which has been falling at a rate of more than €25,000 million in recent years. In 2016, repayments have slowed and the granting of new mortgages has increased, as reflected by the new credit data.

The change in the trend of loans to households has not affected financing for companies. That decreased by 1.6% during the first 6 months of the year – from €918,199 million to €903,378 million – due to the opening of other alternatives such as MARG and the issue of bonds, and the deceleration in demand caused by the political uncertainty. That was one of the main concerns expressed by Spanish bankers during the presentations of their half year results. (…).

By entity

(…)The increase in Bankinter’s loan balance (13.7%) was noteworthy, although that figure was impacted by the acquisition of Barclays Portugal, given that the entity does not segregate those numbers. It was followed by Abanca,which reported that its financing balance grew by 4.1%; CaixaBank, with a rise of 1%; and Santander España, with an increase of 0.8%. (…).

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake