Since the beginning of the year, Barclays Spain has been one the most competitive banks for non-resident mortgages but the changes bring them back in line with the market. Variable rates have moved from 1% above Euribor to 1.25%. The fixed rates have moved from a 3 year at 2.99% to 3.70% nearly a 1% increase with the 5 year also climbing by the same sort of margin.

Today Barclays have been quoted by Spanish newspaper Expansion as requiring doubling profits from an unacceptable level in 2010 by 2013 and planning to focus their activity on wealthier clients. As part of this process they intend to restructure, close 100 branches and lay off 700 staff.

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La Caixa who will be one of the first Caja’s to list themselves has been downgraded by the rating agencies.

The rating agency sights new liquidity requirements being implemented this year, rising defaults and cost of funds which squeeze margins as the core reasons for this downgrade.

La Caixa unlike some of its same size competitors also has less activity outside of Spain so are seen as more likely affected by the continuing issues Spain will experience this year with profitability coming under pressure for the foreseeable future.

Current non-resident offerings include 60% loan to value a 3.5% minimum rate for first year, Euribor plus 1.5% and up to 2 years interest only. Like most banks La Caixa are adding a lump sum life cover premium to all loans granted to shore up the profit that can be made on lending.

La Caixa unlike most banks who will fully underwrite and approve an application before valuation also will not underwrite an application before a valuation has been paid for. This means clients run the risk they pay valuation fee only to find finally the mortgage has not been approved. The fact however La Caixa provide a written approval in principle document means clients often think they are approved without understanding the final decision rests with a centrally based underwriter who will not consider the application at all until a valuation has been made.

Whilst unlikely to make them big bucks the bank will make money out of valuation fees whether they finally lend or not.

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It is reported this week that a court is looking into the practices of Spanish banks including floor rates to which a rate cannot drop below in their mortgage deeds.

This practice has caught out many non-residents in the past who have been unaware of this restriction placed in their mortgage deed. The inclusion of these rate floors is particularly unfair in Spain as re-mortgaging is so costly and difficult to achieve that most clients have had to just live with what they have.

As Euribors are now rising this action for the short term my be a little too late for those mortgagees that have missed out on their Spanish mortgages dropping to an all time low but good news if the action is successful and prevents banks from including floor rates in the future.

Beware of what you are signing!

As banks in Spain continue to struggle to make Spanish Mortgages profitable, so the requirement for linked products has increased.

For many lenders this requirement can only be enforced for the first year and cancelled by the client for subsequent years as the product is not written into the Mortgage Deed. The reason it is not written into deed is because it is not legal to link compulsory products unless an enhanced rate has been given to the standard variable.

If an enhanced rate is given; in the deed to will stipulate the rate and what it is linked to; but will also clearly define what happens to rate if linked products are cancelled.

To overcome the fact that the banks cannot in general write life cover into the deeds and to avoid having clients drop the requirement for year two many banks are now only offering a up front lump sum life cover premium which means the policy is paid for at inception of loan not regular premiums that can be stopped at a future date.

Clients should be very careful to ensure they know what each bank is applying as compulsory to the loan as it is often not made clear to the client at application and if the Lawyer is signing as power of attorney the small print in the mortgage deed may not be fully explained.

For expert advice and to ensure a Spanish Mortgage is only signed in full knowledge of exactly what is incorporated in the deed and the long-term implications buyers in Spain should always use an independent and experienced Spanish mortgage broker.