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





Repossessions Still ‘Haunt’ Mortgages Granted At End Of The Boom

6 March 2015 – Cinco Días

So far, the economic recovery has not been sufficient to slow the increase in the number of mortgage foreclosure processes. In fact, 2014 closed with a total of 119,442 mortgage foreclosures in the property register, of which 70,078 related to homes (5.9% more than a year earlier), according to figures released by INE on Wednesday. The statistics also revealed that six out of every 10 of these processes (61.6%) related to loans granted between 2005 and 2008, i.e. at the end of the real estate boom.

Those are the most vulnerable loans; the ones that have the highest probability of ending up in foreclosure, as a result of what happened in the market. For the individuals who purchased their home between 2005 and 2008 paid the highest prices ever seen. If we add to the mix the fact that they were also more likely to be granted so-called high-risk mortgages, i.e. those with a loan-to-value ratio of more than 80%, then when prices began to decrease in 2008, their own particular terrible ordeal began.

Although no official statistics are compiled about how many mortgages with high loan-to-value ratios were granted during that period, during the bubble, they (are estimated to have) accounted for up to 18% of new loans (today they account for more than 13% of new mortgages, according to the Bank of Spain). This means that as soon as property prices decreased, the holders of those mortgages were trapped in a situation whereby they were technically bankrupt (with negative equity), since their liabilities (the debt pending payment on their mortgages) was greater than the value of the assets (the price they would obtain for their homes even if they managed to sell them).

Naturally, “when you are facing financial difficulties and you know that even if you sell your house you won’t be able to pay off your mortgage due to the loss in value of your property, then thaat acts as a kind of incentive to not continue making your mortgage repayments”, admits one financial institution.

In addition to the situation being faced by the holders of these mortgages, INE’s statistics also show that more mortgage foreclosure processes were recorded in 2014 than during the previous year. Of the more than 70,000 processes relating to homes, 44,682 related to homes that were owned by individual people and of those, 77.6% or 34,680, were processes in which the house that formed the subject of the process was the primary residence of the family unit, up 7.4% from 2013.

Foreclosure versus eviction

This is a pressing situation for the families and a tragedy in every single case, but as INE explained yesterday in its press release, not all of the mortgage foreclosures that are initiated and recorded in the property register end with the eviction of the owners. This is because the legal process that is launched at that stage (and counted for statistical purposes) may give rise to a number of alternative outcomes, such as an agreement to restructure the debt, which would prevent the owners from losing their property.

Moreover, if we compare this figure of 34,680 primary residences affected by a mortgage foreclosure process over the total number of family homes that exist in Spain (18,362,000), the percentage of those affected by a possible eviction amounts to just 0.18%. Another way of looking at the significance of these figures is to take the number of mortgages constituted during the period 2003-2013 over the total number of homes, as a benchmark. In this case, only 0.9% of the mortgages constituted resulted in a mortgage foreclosure process in 2014.

Another interesting fact from INE is that 16.3% of the mortgage foreclosures over homes last year were initiated over new homes, whilst the remaining 83.7% related to second-hand homes. In the case of new build properties, that figure represented a decrease of 4.3%, due to the ever decreasing weight of those properties in the market; whereas in the case of second-hand homes, there was a notable increase of 8.2%.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake