The banks do grant 100% mortgages to buy a home, those that helped to precipitate the real estate crisis of 2007. But do the entities grant few or many of this type of loans? Or, otherwise, do banks again risk the account when granting a mortgage for the total value of the property?
For the moment, the General Council of Real Estate Agents Colleges (API) has shown its concern about the fact that there are banks that are offering mortgages for 100% of the value of the home. It says the president of the council, Diego Galiano.
There are banks that are exceeding the prudential limit when giving mortgages “The APIs begin to be worried because we have detected that there are already financial entities that are exceeding the prudential limit in the granting of mortgages by granting 100% of the value of some properties”, has said Galiano during the sixth edition of the national congress of APIS, which was held in Zaragoza.
“It is very important to be vigilant to avoid repeating practices of this kind, which led to the real estate crisis we experienced a few years ago,” the president of the APIs has warned. That is, to more mortgages at 100% more real estate bubble risk.
The truth is that it is like that. In banking language, it is called Loan To Value (LTV) when the amount on the appraisal is above 100%. Well, data from the Spanish Mortgage Association (AHE) indicate that mortgages with an LTV of the banking system have gone from 4% to 10% of the total balance granted. Specifically, the mortgage credits to buy a home with an LTV higher than 100% have multiplied by four, growing from 2% to 8% of the total.
Is there a real risk of a real estate bubble?
According to the Bank of Spain, investment in housing will end the year above 4.5% of GDP, a percentage “very far” from the 12% registered in 2007, when the crisis began and the ‘bubble’ burst. In addition, compared to this maximum reached ten years ago, the level of this component of demand, which accumulated a fall of 65% until 2013, has registered an increase “slightly” higher than 20% since that time.
Recently, the ‘XXV Report on the housing market’, produced every six months by Tecnocasa and the Pompeu Fabra University, ensured that the Spanish property market grows but remains “far” from the real estate ‘bubble’. According to the professor of Economics and coordinator of the report, José García-Montalvo, despite the recovery, notes that the market is “very far” from what it was before the crisis, since the bubble then contributed 22% of GDP, while this year it represents 12%.
A new bubble may also be contributing foreign funds The CEO of Tecnocasa, Paolo Boarini, believes that the risk indicators are much lower than a decade ago, as the loan value ratio (which has gone from 86% to 72% ) and the percentage of mortgages with a labor contract, which is drastically reduced. “Now the mortgage hardly exceeds 30% of the client’s income, which specifically stands at 25%, in the bubble exceeded 60%”, and explains that the average monthly mortgage payment is now 375 euros per month.
Less optimistic has been the former president of Banco Hipotecario de España, Julio Rodríguez, who in September said there is “some risk” that there is a new bubble in the real estate sector, financed this time by foreign funds. “Foreign investment funds are those that are investing in the purchase of land and in the construction” of new homes that could raise prices.
The difference with respect to the previous bubble is that, since the national banks are not financing the sector, the risk of contagion is lower, he added. According to Rodriguez, it would be very useful for Spain the limitation of what a client should allocate from their income to pay a loan.