Improvements in Spain’s housing market is benefiting bank balance sheets and structured finance deal performance, says Moody’s Investors Service in a report published today. That said, while housing market dynamics have improved amid a strengthened economy, the Spanish mortgage market is unlikely to start heating-up anytime soon.
“Rising Spanish house prices are positively affecting the performance of residential mortgages in banks’ loan portfolios and lowering loan-to-value ratios within the existing stock of mortgages, reducing default rates and increasing potential recoveries from the residential properties,” says Greg Davies, Assistant Vice President — Research Analyst at Moody’s.
Moody’s report, “Spain – Cross-Sector: Housing Market Improvement Benefits Banks’ Asset Quality and Structured Deal Performance,” is available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release. The rating agency’s report is an update to the markets and does not constitute a rating action.
In 2017-19, Moody’s expects that Spanish house prices will grow at a similar pace to the 4.7% annually seen in 2016. Although the pace of GDP growth will likely slow, the Spanish economy will still grow at a healthy 2.3% in 2017, providing the basis for a continued housing market recovery. Rising unit sales, the majority of which are second-hand residences, have also been a major factor in the Spanish housing market’s recovery. The highest growth rates are in the tourist seaside belt and the metropolitan areas of Madrid and Barcelona.
Mortgage origination has also increased from the very low levels at end-2013, but Moody’s views it as unlikely that the Spanish mortgage market will start to accelerate to pre-crisis levels. Given that origination levels remain low at 25% of pre-crisis levels, a rise in new mortgages does not fully support the rise in housing sales. Furthermore, underwriting criteria remain tight versus pre-crisis standards, with demand for mortgages from borrowers with stronger credit profiles.
However, mortgages in Spain could be about to get more restrictive and more expensive on the back of amendments to Spanish mortgage law and rising litigation against lenders like recent rulings against interest-rate floor clauses used in mortgage loans. The Spanish government is in the process of amending the country’s mortgage regulation, in response to the EU Mortgage Credit Directive of 2014, aimed at improving consumer credit protection for mortgages.