You are here: Home » Mortgages » Spanish Mortgages A world of difference!

Spanish Mortgages A world of difference!

If I had been composing this article a year ago the contents would have been very, very different than what follows. For, in just that relatively brief period, pressure from the market place including mortgage brokers such as myself, and common sense with the lenders has prevailed. Some of the readers of this piece will remember the offerings from banks in relation to their property purchase prior to recent changes. Choice was not a word that could have been used easily. All products were much of a muchness and the banks did not understand the meaning of risk based lending.

But the arrival of the 'British' attitude to lending has changed the face of mortgages here in Spain probably forever. We have brought more flexible and aggressive methods of lending that we accept so readily now in the UK. Having said that I cannot personally see the day when the market is as competitive and dynamic that it replicates that in Britain. But what we have is continuing to develop and I would be so bold as to say that, despite recent changes, we will not recognise this market in another year, so fast are things moving.

So what, precisely am I talking about? What changes in attitude or products are now available that would not have been found just that one year ago?

Interest Only Mortgages

Many of you will remember that, prior to the development of the low cost Endowment policy in the early 70's, the UK mortgage market was not too dissimilar to what we had here in Spain just a year or so ago. All mortgages were of a Repayment type, that is capital and interest is paid to the lender, with very few variations of schemes being available. We had the variable rate and long term fixes from inception. That was it.

What the Endowment brought was a change in the attitude of both client and bank alike. We had introduced an element of risk/reward that had not been seen before. Only the interest was paid to the lender; the Endowment was a savings vehicle that over time was targeted at producing more than the face value of the debt. Most did and it is only in recent times that we have seen some doubt as to expiring value to be sufficient to do the job.

Then we saw Pension mortgages and PEP/ ISA mortgages, all on the same them as Endowments but with potentially greater tax efficiency.

Here is Spain (at last I hear many sigh) we have seen a similar relaxation of risk attitude at least in part. A good number of lenders, both in the UK and on the Spanish mainland, now offer an element of Interest Only in their product portfolios. Most of these schemes have been prised open by mortgage specialist brokers such as Rose Financial Services. We have been banging on the door for some time and finally we have receptive ears. The offerings do not yet reflect what is available in the UK, but we have made a start.

And the benefit that this brings to the borrower i.e. you?

We have found here as in the UK, that there is a large percentage of the Ex-Pat community who are rich in asset and poor in income. They struggle month to month to get by and yet have seen the value of their homes increase significantly in recent years. So the ability to access some of that equity, perhaps to enhance their life style or to purchase another property (for income purposes?) has become prevalent. Here, as per back home in Blighty, property owners have realised that bricks and mortar is a solid way to build for retirement.

And with Euro interest rates being so low, an Interest Only mortgage of 100,000 euros will cost just over 300 euros per month. Of course, the capital has to be repaid at some point but often the need for savings on mortgages or income is today rather than tomorrow.

Fixed Rates

In the UK in the late 80's and early 90's we had a massive upward shift in interest rates which resulted in a need for the design of products that would be attractive to those borrowers looking to add protection to their mortgage payments. Whilst there were lots of negatives attached to these developments (I refer to 'Deferred interest mortgages' or 'Stabilisers'), there were also positives. Lenders began putting together products that could mitigate some of the pain that borrowers were having to suffer; to reduce the initial cost to allow borrowers an ability to survive! This continued into the mid 90's when we had a return to the attraction of the 'Fixed rate' which again kept the dynamism of the UK market moving.

And Fixed rates, whilst being readily here on the 'old style' Repayment mortgage, has now arrived for Interest Only mortgages too. So we have a double bonus for the borrower; the ability to switch from Repayment to Interest Only always AND to peg the monthly payments for a period of years. And there's more!

Re-mortgaging

Perhaps above all though, and again in the mid 90's, we saw the introduction of the concept of 'Re-mortgaging'; that is a switch from one lender to another for a variety of reasons. Loyalty to lenders prior to this was readily found and it was unusual to move lender. Nowadays there is no such thing as customer loyalty and consumers are ready to move to any lender offering more attractive terms. Common sense really!

So, here in Spain today, what we are now seeing is a part replication of what the UK has been through over many years, all of which brings benefits to the borrower.

So let me summarise what these benefits are.

Interest Only. To keep payments down. Fixed Rates. To stabilise monthly mortgage payments. Remortgaging. To switch banks for a better deal and, perhaps, to free some of that locked in equity. And there will be more to come. Perhaps the most significant product development in the UK in recent times has been the 'Self Certification' mortgage where borrowers do not have the ability to prove the income that, under normal circumstances' would be necessary. For Self Cert mortgages, the lenders take a view on history (what mortgage have you had up until now? How have you afforded that?) and balance risk versus reward. They only lend a limited percentage of the value of the property knowing full well that, in the event of a client defaulting on the mortgage, they will recoup their funds from the sale of the property. A risk, yes, but they charge a higher interest than the norm for the privilege.

Self Cert mortgages are not readily available here, as Spanish banks in particular, do not accept risk in the same way as their UK equivalent. But they will come adding yet more to a developing mortgage market.

Mark Mountney is a partner in Rose Financial Services, a specialist mortgage brokerage based in the Parque Comercial, Mojacar. He is a fully qualified mortgage and financial adviser in the UK with some 10 years experience in managing his own firm. Mark was also a founder of The Association of Mortgage Advisors, the trade association for mortgage intermediaries with 13,000 members