Banks Return to Granting 100%+ Mortgages
December 11th, 2012
Banks have increased their offensive in order to reduce the volume of properties on their balance sheets, and are again giving mortgages worth more than 100% of the price or appraised value of a property.
The BBVA, Popular and Sabadell banks, among others, are applying this practice, which is aimed exclusively at selling their properties. This serves buyers by covering the costs of taxes, notary and registration fees, which on average account for 10% on top of the selling price and means that no savings are needed in order to buy a property.
Up until recently only the Popular has been offering these conditions, but in recent months the policy is spreading. Although officially institutions are only able to offer loans up to the value of the home, in the banks’ branches they are allowed to authorise greater loans, in some cases amounting to 110% or 115%.
Mortgages of over 100% of the property value depend, however, on the solvency of the applicant and their ability to pay and these operations are not widespread, but they serve to lighten the banks’ real estate burden and capture new customers connected through the recruitment of other products.
The ease of access to credit, coupled with discounted property prices, ranging at times up to 60% or 70% of the book value, has revived the market slightly. The provisions required by the government to cover losses and lowering the value allow entities to expand their capacity to act. In this sense, the industry benefits from sales with the release of provisions, as these are higher for possession of a property by the granting of a mortgage with guarantees to creditworthy customers.
El Economista reported that banks are increasing their efforts to reduce the housing stock and take advantage of the tax benefits as, from 31st December, the tax deduction for the purchase of a home is to be eliminated and the VAT on a home purchase is to rise from 4% to 10%.
Economic difficulties and forecasts of greater decreases in prices is holding the real estate sector back. Citizens are waiting for better conditions in order to invest in a property. According to the official data from the National Statistics Institute, the volume of mortgages in September fell by 14% year-on-year, with specifically only 22,000 loans being registered for home purchases.
The sector hopes that the start of operations of the bad bank will reactivate the market, as competition with healthy entities will increase the interest of this institution to off-load its toxic assets as quickly as possible.