Wednesday, March 11, 2009

Last Man Standing

We hear rumours from one of our lenders that they are intending to increase the margin above the Euribor for their Spanish mortgage products. They are pretty much the last lender that is offering interest-only deals for more than 60% of the value of the property – their 65% option effectively being the market leading deal at the moment. They must be getting floods of applications for this deal as clients look to switch from expensive repayment loans to more manageable interest only mortgages. Of course it looks like an opportunity for them now to increase their margins and fix a higher profit for themselves for however long the client has the Spanish mortgage for. So in the event of a recession that may last 2 or 3 years at most, they could be locking customers into 40 year mortgage deals at a high margin over the Euribor, in a mortgage market where switching lenders is ridiculously expensive to do. So in a way they can’t be blamed as they are the only lender sticking their neck out at 65%, when the rest of the crowd sit at 60% LTV or less. Come on guys – 40% equity in a property – how much security do you need ? It is of course the banks that have been the driving forces behind all the crap that is going on, with hugely irresponsible lending and investment practices in products and vehicles that they didn’t understand fully, and in some cases make no sense at all. They people that didn’t cause the recession are Mr and Mrs average that bought a Spanish holiday home where they have put in 20 or 30% plus 10% of costs themselves. The vast majority of Spanish homeowners have made significant contributions to purchasing their properties, and most of them are on repayment loans, probably at 70% or more. Surely there isn’t much risk to the lenders in taking on those loans at 70%, interest-only (which is more profitable in the long term as capital remains constant) then it reduces the customers’ outgoings, giving them more disposable income to either save or spend in the economy. If things continue like they are, then the mortgage products available in Spain will just not be any good for the vast majority of potential borrowers. Then the lenders will start asking us brokers where all the customers have gone (if there are any brokers left by then)
Will keep updating the blogs as things progress. Thanks for reading.
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