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.

Ahead of its UK counterparts from October the 1st the two banking arms in Spain Lloyds and Halifax will come together as one. From October 25th all Halifax branches will be re-branded to Lloyds.

At present there still remains a few differences between the two in lending criteria.

Lloyds minimum loan size is € 100k whereas Halifax is € 50k. Lloyds only offer 12-month Euribor trackers whereas Halifax offer 1 month and 12 month.

Debt to income ratios are 50% at Lloyds but they use an inflated interest rate of 5% to calculate this and Halifax is 35% using the current rates of around 2.5%.

For any clients with applications currently being processed by Halifax their broker or the client themselves should push for an offer quickly to make sure their terms are honoured as it would seem far more likely criteria will moved totally to the Lloyds current stance rather than an adaptation of the two.

Given the banking groups appetite to lend in Spain for the foreseeable future is very low it is unlikely criteria will be relaxed to meet the more accessible Halifax current risk profile.

Having almost removed themselves entirely from the non resident market by lowering loan to values to 50% and increasing rates two years ago one Spanish Bank has recently changed its product portfolio to attract new business.

By far the best of their new products is 5-year fix at 3.20%.

With current variable rates averaging around 2.5% to 2.75% but with Euribors now increasing slightly each month; and a market view that without doubt in the next 18 months the ECB base rate and Euribors will increase steadily; this would seem to be fantastic value for money over a 5 year period and a good low rate hedge against rate increases. After the fixed rate period the variable rate will be 0.49% above Euribor; with most banks currently charging between 1.25% to 2% above Euribor this a very low and unlikely to be beaten in the longer term.

The bank has also raised loan to values to 65% making it only one of two banks above 60%.

Interest only up to two years on a case-by-case basis can be made available although the banks strong preference is a repayment mortgage and it is more likely to be approved on a repayment basis.

Minimum valuation of property must be 170k and debt to income ratios cannot exceed 30% but for clients who qualify this market-leading product provides good value in an otherwise difficult market.

For further information contact us