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