We hope that you have all had a great festive period and are looking forward to having a fantastic start to the new decade as much as we are at Fluent Finance Abroad. As we begin a new decade, we also see the beginning of a new era within Spanish mortgage lending, and while we all welcome changes which are better in the long term, it does inevitably come at the price of a period of pain whilst the changes are interpreted and adopted by the banks.
As the owner of Fluent Finance, I would like to share some thoughts with you as to how the implementation of the new Spanish mortgage law 5/2019 into operating procedures is having an effect on lenders.
The law stipulates that banks and lenders are “more on the hook” or accountable for the advice they are giving to potential mortgage borrowers.
We are already seeing that lenders are becoming ultra-cautious when making lending decisions. Going forward this approach will remain, or even become more stringent as the operational risk managers develop systems and controls to mitigate or reduce the new risks presented by the burden of giving best advice.
I am expecting that this trend is only going to increase this year now that every person advising on Spanish mortgages in the banks are subject to the new law and therefore responsible for the mortgage advice that they give.
This means that a lot of cases that may have gone through in the past will now be looked at more rigorously having the effect that some will not get approved unfortunately.
Added to this a lot of banks are giving us the impression that they are having trouble with the part of the new law which states that borrowers who earn income in a currency other than Euros must have the option to have their mortgage in the currency that they earn their income in such as US Dollars, Pounds Sterling, Swiss Francs and more exotic currencies such as Hong Kong Dollars, Polish Zlotys or Saudi Riyals .
This part of the law was brought in to stop banks miss-selling to Spanish residents multi-currency mortgages on a property based in Spain, therefore, valued in Euros but unfortunately, the new law doesn’t take into account the non-resident Spanish property buyer and this is having an adverse effect on Spanish banks and what they are willing to offer non-Spanish resident mortgage applicants.
Having to give a potential borrower the option to have a mortgage on Spanish property in the currency that they earn in if they are a non-resident of Spain and that the property purchase is a holiday home or investment opens up some major risks to lenders such as;
- Increased costs of offering such a non-standard mortgage
- Increased costs of calculating the continuing actual value of the foreign currency mortgage, outstanding balances / monthly costs etc.
- Increased risk to the equity available or Loan to Value (LTV) in the property if the currency that the mortgage is held in lowers in value to the Euro value the property is valued in. (this is not just a risk for the bank but a major risk to the mortgage borrower)
- I would expect that this part of the law will have to be amended at some point to ensure that the banks do not have to issue a foreign currency mortgage on a Euro-denominated asset such as a home in Spain for non-Spanish residents.
At the moment, this law actually seems to be promoting that foreign borrower take out mortgage in their own income currency rather than the currency that the asset is valued in which means that any equity in the property can be eaten away quite quickly and dramatically if the exchange rate goes against the borrower which is a nightmare for all concerned.
The sum total of all this is that it’s never been easier for the unwitting to get a Mortgage application DECLINED. That is not good news in terms of property sales.
We have already received lots of new enquires from individuals who have attempted to work directly with the banks themselves,or being guided by a real estate agent or law firm who have been turned down by a lender that they have been speaking to.
They have come to FFA late in the day to see if we can source them the lending they require to complete on the property they wish to buy which is most cases we are able to do of course as we ensure that the application gets presented in the correct manner to all of our network of lenders.
You never get a second chance to make a first impression and sometimes by the time we get contacted the bridges between client and lender have already been burnt too badly to repair. Other times we can make some remedial changes to the mortgage case to get the lending over the line with another bank.
This need not be the case it should not arise if professionally qualified mortgage intermediation is used in the first place. Allow us to help you and take the pain out of the process of getting mortgages approved.
Thankfully, we have our fingers on the pulse of changes within lending criteria, and we work as a whole of the market broker which means we can get much more than the fair share of lending cases approved. We know how to present mortgage cases in the best possible light, first time of asking in the language the lenders expect and understand.
To conclude, knowing that lending criteria are being tightened dramatically and that certain lenders are having real difficulties in understanding & implementing the new mortgage law, we feel that it is imperative that clients get to speak to us at Fluent Finance Abroad as soon as possible. I´m sure that you will call upon us in the first instance and I welcome you to do so, we can help you to minimise the impact of all this change upon you and your clients. The sooner in the sales process that we speak to your client the better, we can help you to qualify the customers’ finances, and take care of obtaining any additional lending from the banks that may be required in a way that only a professional broker can.