Spain Credit Falls to '05 Shadow After Price Collapse
Spanish property broker Donpiso pledges on its website it can sell homes within 60 days. That's possible, said Juan Luis Nolasco, who runs one of the firm's Madrid branches, only if owners are realistic about prices and the difficulties buyers face getting mortgages after six years of falling values.
"A lot of sellers are still living in the land of Peter Pan," Nolasco said, referring to the fictional Neverland. "The biggest problem is lack of access to financing for buyers." Currently, it can take about six months to sell a property, he said.
Buying a home hasn't gotten any easier for Spaniards, even after home prices tumbled as much as 40 percent. Rising borrowing costs, currently more than one-and-a-half times the cost in Germany, the end of mortgage tax breaks, and shrinking disposable incomes are making it increasingly difficult for Spanish families to own their own home. Fewer than 15,000 mortgages were granted in September compared with about 129,000 at the September 2005 peak, according to the National Statistics Institute.
Spanish homeownership—at 83 percent the third-highest among countries that share the euro after Slovakia and Estonia—is under assault as the nation's banks and government threaten to delay a real estate recovery. The collapse of a decade-long property boom, when mortgage lending surged almost four-fold, pushed Spain's economy into a five-year slump and forced banks to take impairment charges of $118 billion last year to help clean up soured assets linked to real estate.
The average rate on a new mortgage with a term of more than 10 years was 5.19 percent in October even as 12-month Euribor, the benchmark used to price most Spanish home loans, has dropped as low as 0.51 percent, according to data compiled by the Bank of Spain.
That compares with a mortgage rate of 5.84 percent in 2008, when 12-month Euribor was as high as 5.38 percent. The same mortgage in Germany would cost 3.14 percent, 3.19 percent in France and 4.77 percent in Italy, according to the European Central Bank.
In Spain, a monthly installment for a "standard" 2007 floating rate, 27-year mortgage with a loan-to-value ratio of 80 percent would only be 5 percent higher than the same mortgage today because of higher margins now charged by banks, according to a Nov. 7 Fitch Ratings report.
Taking into account the government of Prime Minister Mariano Rajoy ending tax deductions for home acquisitions at the end of 2012, the total cost of buying a home with a mortgage is now higher than in 2008.
"The irresponsible buyer who bought at the top of the market is paying less than the prudent buyer who's in the market now—it's crazy," said Juan David Garcia, a structured finance analyst at Fitch in Madrid, who wrote the report with Carlos Masip. "If you do the numbers, you can see the market still has not reached its equilibrium," Garcia said in an interview.
Loans aren't just getting scarcer, they're also getting smaller. As the number of residential mortgages awarded to Spaniards fell by an annual 31 percent in September, the average loan was for $132,987, down 5.5 percent from a year earlier and 36 percent from a peak of $208,384 in 2007.