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[EP6] La Piedra Podcast - Spanish Mortgages Special with Mark Stücklin & Sean Woolley

[EP6] La Piedra Podcast - Spanish Mortgages Special with Mark Stücklin & Sean Woolley

The 6th episode of “La Piedra”, Cloud Nine Spain Managing Director Sean Woolley and Mark Stücklin (Spanish Property Insight) tackle the hot topic of Spanish mortgages.

Listen to the podcast version here

Link to the youtube video here

Sean: Hello everybody. Welcome to the latest edition of the La Piedra podcast. I’m Sean Woolley, managing director of Cloud Nine Spain. We’re a real estate company based in the Costa del Sol. And with me as always, I have Mark Stücklin, from Spanish Property Insight. Mark is the guy who has all the data. So he is the man to go to to find out what’s been happening in the market, where the market is positioned at the moment, and when he gets his crystal ball out, maybe he can see into the future and give us a little handle on where he sees the market heading. So we look at this from two angles, really, where we’re helping people who are maybe considering buying or selling a property in Spain to make an informed decision based on fact not speculation. And also we’re coming at it from two different angles, Mark, from the data angle, and I’m from the sort of boots on the ground, what I sense is happening, albeit I’m in a little bit of a micro market here in Marbella.

Mark: Yep, okay. So the very latest data, so that was, I think you were quoting from the registrars.

Sean: Yes.

Mark: And now we’ll look at the notaries ’cause the registrars, there’s a longer process between purchase and inscription in the Land Registry takes about a month or up to three, so there’s always a lag between the registrars data, the notaries and the registrars, and they’re kind of better at different things. You get more detail from the registrars on things like mortgage lending per nationality, but you get more detail from the notaries on things like purchase per region, and spending per nationality, so you gotta use them both. Anyway, the latest data is from the notaries, and this is just mortgage data, it doesn’t break down by nationality. They don’t do that on their monthly data, they only do that in a half yearly report. Anyway, so we know that mortgage volumes, new mortgage lending volumes, were down 24% in February. That’s the sixth consecutive monthly decline, there’s a clear downward trend.

Sean: Is that 24% year on year or is that from January to February?

Mark: No, year on year. So this February compared to February last year.

Sean: Okay.

Mark: And that annualised decline, this sort of year on year, has been going down to six months. This is inevitable. I mean, we all saw there was an amazing recovery after the pandemic and a post pandemic boom went on, but they can’t go on forever, you know. They’re unsustainable and at some point they have to cool, they cool down and sales and mortgage rates are all still quite near all time highs, but they’re just not as growing compared to last year as fast as they were. So that’s encouraging, ’cause you can’t carry on growing at that kind of breakneck speed forever. And so what we needed was a type of a slowdown and a consolidation, but what you don’t want is a downturn or recession. So we’ll have to see where we’re going. But so far, the mortgage lending is down 24% this February compared to last February and I think in Andalusia, it was down 25%. So in pretty much all of the latest mortgage data, Andalusia, which is your territory, is reflecting the national average. In values, they were down, so this is the average loan value of a new mortgage, they were down 7% in February to 144,000 and 7% in Andalusia. Though funnily enough, in the Valencian region, it was up 9%. Valencian region seems to be the region that’s kind of bucking the trends to a certain extent. So in terms of values, that’s the second consecutive month of declining values since the 2020s, since the early days of the pandemic. Euribor is the base rate that’s typically used in most Spanish mortgages to calculate monthly repayments and Euribor in April, so the average for Euribor in April was, we’re just 2nd of May now, was 3.757, which is up 17,791%. Don’t get alarmed by that. People thinking, “My mortgage payments have increased 17,000”. No, it’s because back in February 2022, Euribor was 0.021, so it was almost zero. And now it’s 3.757, it’s a massive increase, but only because the base is so insignificant. But what it does mean is that the average mortgage of let’s say 120,000 euros at 20 years, is gonna be up about 200 euros a month in repayments. So it is part of the rising cost of living story and people have to factor that in and everyone making, each individual, making their decisions in their own best interest, that’s why you see things like, it’s helping to bring down, that’s reducing mortgage lending. And I think just one last thing before we get onto what does it mean, how are you seeing it on the ground, what are your clients doing, how’s it affecting the market? Just to note that the new mortgages, you can either take a fixed mortgage or a variable mortgage, and it used to be variable mortgage, variable rate mortgages were much more popular than fixed rate mortgages, but that’s hasn’t been the case for a few years now. And in February, fixed rate mortgages, you know, all I’ve got mortgages at 30 years at a fixed rate, you can get them for lower, smaller, shorter periods of time. But if you’re gonna take a mortgage, it’s good to have, if possible, the longest period of time. My entire mortgage lifespan is fixed and I don’t have any uncertainty on what they call interest rate risk. It’s completely visible to me from now through to the end of the mortgage. And so the fixed rate’s worth 65.7% of all new mortgages in February and variables were 34.3, so it’s sort of 65/35 in favour of fixed rates, and they’re fixed rate mortgages, which is good because they bring a lot of stability to the market ’cause the borrowers, they know what they’re gonna be paying today and in 10 years or whatever the fixed rate seems to go for. And I don’t know, maybe we’ll get to this, but in the UK there seem to be fixed rates that are done for a couple of years, three years, and then they turn to variable. So you get the benefit of some, maybe they’re just cheaper, it looks like a better deal for you today, than later. But I would always go for the longest fixed period time possible. And then finally the rates, the average mortgage rates for fixed mortgages in February were, so this is the average interest rate for a new mortgage was 2.96% and for a variable was 2.7%. So variables are always should be cheaper because you’re taking a risk, you’re exposed into a interest rate risk, and so that’s why you get a cheaper rate in the short term. But of course, if rates go up above what you could have got on the fixed rate, then you’re out of the money. The spread was only 26 basis points, which is tiny. I mean, you’d be insane not to take a fixed rate at such a small spread between the cost of a variable and a fixed rate mortgage. So that’s the overall picture, Sean. What’s going on with your clients? Most interesting is, how does this translate into people buying and financing their purchases?

Sean: Do you know, it’s really interesting and I’m a little bit jealous of you, Mark, because I’m on a variable mortgage, variable rate mortgage and my mortgage rate has just shot up literally yesterday. And yeah, I was kind of scrabbling around for the terms and conditions and of course, yeah, there it is. So, I had a little period of, an initial grace period on a fixed rate and then it just.

Mark: What, in Spain? Was that your mortgage in Spain?

Sean: Yeah.

Mark: How long was your fixed period?

Sean: I think it was just a year, or 18 months. So it wasn’t long at all.

Mark: Okay.

Sean: And of course at the time I took it, interest rates were exceptionally low and everyone thought, “Ah, they’re never gonna rise”. Everyone thought, so, yeah, I get it. And you’re right what you say, if the variable is 2.7 and the fixed is 3.7, then there’s a decision to make. But when they’re so closely aligned, where you’re at 2.7 as opposed to 2.96, you know, you’re absolutely right, for that extra little bit, you might as well just take a hit and be happy with what you’ve got.

Mark: Exactly.

Sean: It’s very interesting and it’s a debate that I’m sure every client has with, well with us certainly, and also with their mortgage broker or their bank, as to which way to head with it. But we are.

Mark: Let me just say, you know, these are the figures published by the notaries, you might not get this kind of a choice in the real world. This is like the averages of 20,000 new mortgages and so there’s all sorts of variables, reasons why people, I don’t think everyone’s gonna go to the bank and get offered, “Oh yeah, you can borrow for 30 years at”, depends on your age, depends on your credit profile, depends on a whole range of things, but nevertheless, that’s the overall picture.

Sean: Yeah, it’s interesting, because obviously, like we’ve always said, within a market, like this mortgage market, there’s mini markets if you like, and it depends if you’re a resident or a non-resident, ’cause residents tend to get better longer term deals, but you know, also banks are reluctant to lend to people from certain countries.

Mark: Yeah.

Sean: Or with certain currencies. So there’s a whole load of little things going on there in the whole of the market. I think what’s interesting for us is that we’ve just had our first quarter, well the first four months of the year, and it’s been, on paper, it’s been the best four months, the best first four months of the year that we’ve ever had, better than 2021, which was our best year ever. So we are, if things keep going as they have done for the first four months into the rest of the year, then we should have pretty close to our best year ever. So we’re not noticing the effect of that a little, as much as maybe I thought we would. I’m guessing that’s because we are operating in a bit of a micro market here in Marbella. It’s a little bit of a bubble because it attracts probably a disproportionate amount of wealth and obviously the wealthier you are, the less you tend to rely on finance because you have oodles of cash. That’s supposed to be how it works.

Mark: Well you just have more options, don’t you? It’s just easier.

Sean: You do. And you know, I’m sure there’s, particularly at the really high end of the market, there’s people who are getting mortgages from private banks and stuff like that, which of course probably wouldn’t be, or would they be reported, I don’t know. Would they be reported at the notary with the notary level? You’d expect so, wouldn’t you?

Mark: Yeah, I think so. I mean, the bank would want to be on the deeds as the.

Sean: The charge holder, yeah. I mean, I think that’s a very, very tiny piece of the market anyway, but we’re, so we’re not noticing any distress in the market. What we’re noticing, as has always been the case with us, because our average sale here on the Costa del Sol is probably between 800,000 and a million, so we do stuff pretty much from three, four, 500,000 upwards. And so we’ve got a split, probably 50/50 split, of people who buy with cash and people who need a mortgage. And that’s always been the case with us, so we’re not totally reliant on the mortgage market. Like I said, you know, the Belgians don’t tend to go for mortgages unless they really need them. So again, it’s people’s different cultures, how they want to use their own money and whether they believe that.

Mark: The Germans are not keen, Germans and Swiss are not keen on mortgages either.

Sean: No.

Mark: I mean, it seems, I think, that the latest, they’ve been getting more, are less averse to mortgage financing over the years. But in Germany, you know, they’re like cash buyers.

Sean: Yeah.

Mark: They prefer cash.

Sean: Yeah, and the interesting thing is as well, that obviously we mentioned Andalusia being my patch. It’s not really, there’s again, lots of different markets going on within the whole Andalusia region. Marbella and the Costa del Sol is one of them. It’s the California of Europe, so it probably has its own forces, its own supply and demand issues. Whereas you go into maybe a more kind of resident, local market, in Malaga or Granada or Seville, and the conditions are completely different because you’ve got a different profile of buyer. It’s more domestic, it’s probably lower end, and obviously there are different pressure points on those types of buyers than there are on the wealthy. Let’s be absolutely honest, you know, we’re living in a capitalist society and sometimes, when there are headwinds against us economically, the rich get richer and the poor get poorer. That tends to be how it works. So it’s interesting to hear these figures and to get these figures, I think they can be interpreted in lots of different ways. I think the important message from me, and this isn’t fictitious, is that the market is still moving apace here. We’re noticing in terms of pricing, we’re noticing a little drop in some instances. I’m not seeing alerts for properties with a price increase. I’m seeing just a few dropping off, maybe from the post Covid kind of boom period, when everyone got a little bit excited about the market and the pricing. We’re noticing it’s just coming down to a more natural level. But then of course I was having this debate with a client this morning. Of course, when you’re talking about a specific area like Marbella’s Golden Mile or anything beachfront on the Costa del Sol, you know, they’re not making any more beach. So it means that the value of the stock in certain areas is always likely to be very buoyant because there’s a minimal amount of supply and a lot of demand for those areas. So, you know, this is where it’s fascinating because there are literally so many little micro elements going on within all these markets. And this is where I think it’s great to have the figures, it’s great to have the national figures and then the regional figures ’cause they give you an idea of what’s going on. But I think when you are dealing with predominantly a second home market, as we are in Marbella and a sort of micro-market as in the California of Europe, it’s very hard to interpret those general figures for this market.

Mark: Yeah, I know, absolutely. There’s some areas where the figures, the national figures, the overall story, is more relevant.

Sean: Yes.

Mark: Because they’re more plugged into the national story. But like you say, Marbella is not. It’s like a bubble and it has its own dynamics and you have a lot of, even in a recession or a downturn, if you have very diversified international demand, you know, there’s just more buyers around than other markets and other segments and they’re cash buyers, they’re not so reliant on mortgage financing. So yeah, in Marbella, you really have your own little world and that’s great. It makes it certainly more insulated.

Sean: Yeah.

Mark: And insured against. Although it wasn’t, let’s be honest, when the big crash happened of 2007, eight, nine, and it kind of bottomed out, there were some fantastic opportunities in that because even though Marbella hadn’t changed, there was a sense of, “Oh yeah, Spanish real estate is all toxic now, just don’t go near it, it doesn’t matter”. And there were fantastic opportunities in Marbella and also people who had borrowed too much and were in difficulty and had to, they were in distress and even wealthy people, because it was quite a unique situation. But that’s not gonna, doesn’t look like that’s, we’re certainly were nowhere near that today for a bunch of reasons. I mean, let alone mortgage lending is the criteria and the credit requirements, the banks are very, very careful who they lend to and getting more careful by the way, because this government’s putting all sorts of conditions on the banks, I mean the hard left coalition, junior partner in the coalition, they’re trying to force the banks, well they’ve made it a proposal, which has been rebuffed by the socialists, but to try and make all variable rates mortgages fixed, which is just like, you know, bailing out, it’s rewarding variable rate borrowers at the expense of fixed borrowers and lenders, and it’s a moral hazard on a massive scale, but anyway, it’s not being entertained in this case. We have to talk about the housing law maybe in the next discussion because although it doesn’t have much relevance, I don’t think, to Marbella, and to the foreign market, it does have a broader way it’s gonna kind of impact the housing sector in Spain. Anyway, to get back to the mortgage and the fact that this time round, lending is much more reduced. House building is extremely reduced still, we’re nowhere near bubble territory, so there won’t be the kind of opportunities.

Sean: I bought property when the problems came in 2007, 2008. I saw an opportunity, I bought some property, but I’ve also bought property in the last 12 months here in the Costa del Sol because I sensed an opportunity with a couple of little things purely from an investment point of view. And I think what’s encouraging for me with regards to the indebtedness is that, you know, banks as you said, are much more ruthless if you like, in terms of their qualification procedure, the amount of information required before they offer to lend their money. And also what’s interesting is the fact that the fixed rate market is, what, 66% of the market? And that’s reassuring I think, ’cause if anyone’s looking for evidence of bubble territory and boom and bust and stuff like that, I think that’s good to see because it means that people can manage their cash flow. ‘Cause as you said, you know, the problem is, and even for the wealthy, the problem would be, if their mortgage rate increased by 2000 a month, then all of a sudden, that does impact on your household income and expenditure patterns. And then you see a glut of properties returning to the market for sale and then you see the imbalance of supply and demand and then you end up in a different market. I think we’re seeing very different things and I think it’s a very different scenario when you look at the number of mortgages granted in the last 12 months compared to pre-pandemic levels and also, especially compared to 2006, when there were like three times as many mortgages, that’s encouraging, when people are looking for evidence of the market being a stable market, I see that as an encouraging piece of news, really. And particularly with the way that mortgages are structured now in terms of the qualification and also the fact that fixed rates are certainly the choice and recommendation of most banks, then that’s good, that’s good, because it should mean that no one’s gonna get a nasty shock.

Mark: Yeah, absolutely. That’s all very positive and but nevertheless, you know, most people need mortgage financing to purchase, not in Marbella and not if they’re Belgian, but you know, most Spaniards and a lot of people. But also it’s been rational to buy with a mortgage, when you can get long-term fixed interest rates at close to 2%. It’s been absolutely rational to take as much credit, get as much credit, borrowed money as you can, even if you don’t need it, just because the money’s basically being, I mean inflation, we’ve been near 10%, so it’s a gift.

Sean: And also, you know, mortgages are still cheap. I remember.

Mark: Amazingly cheap.

Sean: Yeah, I mean I’m old enough to remember the bad old days of 15, 20% interest rates. Now we’re at what, three and a half, 4%, something like that?

Mark: Yeah.

Sean: On average, and that’s probably where it should be, because what it means, even if you have the cash, is actually, if you can make more than 4% elsewhere with your savings, then why not take advantage of a mortgage? You’re gonna be effectively, cash flowing yourself. So the people that I speak to kind of in the know, in the finance game, they say, “Look, Sean, mortgages are, it’s still cheap money”. It’s just that we’ve got so used to it being almost free money that we’re now baulking at it and actually it’s still a pretty good deal.

Mark: Yeah. If by historical standards money is still very cheap today.

Sean: Yeah, yeah.

Mark: I mean I think it’s different in the US but in Spain, in the Eurozone, you can still buy, you can still borrow. I mean, I don’t know, ’cause I just see the average figures, but you know, they’re pretty low. I don’t know what the reality, I mean what are your most recent, do you know any recent examples of clients of yours who’ve taken a mortgage, what kind of a rate did they get?

Sean: It varies from client to client and their affordability and all those sorts of things. But they’re still, I mean I haven’t got the the data to hand, but they’re still getting good deals. Because what we tend to do with most of our clients, and this is for another debate, but what we tend to do with most of our clients is we introduce them to a broker, a specialist broker, who can help them find the lender for them, because not every lender is the same. You’ll know, there are some Spanish banks that are very traditional, they won’t think outside the box, and then there are others who will. So when I applied for my mortgage, I think we put the application into three or four different banks. And honestly, I think two rejected me because I was self-employed. And then the other two, it was a wildly different offer. So I think it always pays to pay that little bit extra to a broker rather than just approach your bank who you’ve dealt with for years. There’s somebody down the road probably with a better deal for you. Yeah, as long as the paperwork stacks up and the figures stack up in terms of your eligibility, then what a lot of brokers do now is they put your case forward to two or three companies and get the companies, the banks to fight for the business, which is actually quite interesting. And you gotta remember that, yeah, although people want mortgages, the banks wanna lend money as well. This is how they make money so they have targets as well to lend to people. So again, time for another debate on this, but it’s an interesting dynamic going on in the mortgage market.

Mark: No, yeah, absolutely. So you would recommend, in terms of tips, I mean if you want to buy, I mean it’s still cheap to get a, so if you can get a mortgage, if you’ve got a good credit score and you want take advantage of that and you’re gonna buy a property in Spain with prices what they are. Like you say the Belgians, they’re just hostile to the idea of getting into debt. But people who are not that debt averse and you wanna take advantages of still cheap money, what’s the best way to go about it if you’re buying property in Spain?

Sean: I would speak to your agent and find out if they have any introductions to local mortgage brokers who can speak your language and who can sit down with you or they can do a zoom with you, as we’re doing, and talk about the finances. And my advice to clients is be honest, you know, don’t keep those skeletons in the closet. If you’ve got 15 different loans for 15 different cars that you’ve got on your driveway, you need to come clean, ’cause the banks are gonna see it. You know, the banks are gonna want pay slips, they’re gonna want bank statements, they’re gonna want a credit report. So they will see these loans, they’re not stupid, they will see this debt. So be upfront and honest with your broker because it may be that your broker knows a bank who will be more sympathetic to your needs and those 15 car loans, they might look at it in a slightly different way, but I would always use a broker. I did, I’m based here, I know a lot of banks, but I still used a broker and paid their fee and I got a, well at the time it felt like a good deal. With the market being a little bit heated at the moment, people are competing for properties and if you are not in a position to act decisively and quickly on a property that you fall in love with, you’re gonna lose that property to someone who’s in a better position than you. This happened to me as well. I was slightly behind the market. I didn’t have all my ducks in a row and people were beating me to properties because they were cash buyers or they were mortgage approved and ready to go. So my advice to people would be invest that time speaking to an expert. Find out how much you can afford, because until you do speak to someone, you really don’t know, in terms of how much a bank will lend. And then you can go into the market knowing that you’ve got agreement in principle, you’ve got probably some cash in the bank for a deposit. And if you see something that you love and you’ve got a two or three other buyers in the frame as well, at least you’re in pole position, you can go, bang, “Yes, I want it”. And honestly, from personal experience in this market, I’ve seen that happen to two or three people recently who just weren’t quite ready to commit and they’ve lost properties.

Mark: Yeah. Okay. So sounds like get your mortgage financing, feasibility, get that all sorted out so you’re not wasting your own time or other people’s time. That’s one of the first steps to look at if you’re going to use mortgage financing, make that your first thing to try and clarify.

Sean: Absolutely, and I also think even if you are not thinking of using a mortgage, just explore the opportunity, because as I say, there might be something more interesting that you can do with your cash that will make you more money than you are paying on the mortgage, you know? And these are, we’re getting into investment territory here, which is not my bag, but the fact that we have multimillionaire clients who still use the bank’s money, says everything you need to know about their view of how cheap finance is at the moment.

Mark: Sure, yeah, absolutely. But also bear in mind that taking out a mortgage, there’s pros and cons and you have to weigh them all up. Taking out a mortgage comes with a bunch of costs as well. There’s like extra fees, stamp duty, the notary, everyone likes to charge a fee whenever you do anything and mortgages come with some costs and so. But once you’ve taken those into account, but obviously the most important thing is the cost of money, not just the transaction costs, but there are transaction costs associated to taking out mortgages as well.

Sean: There are, although those have been lessened with this government in power, obviously having a socialist government, they’ve kind of forced a lot of those costs back onto the banks. Now you’re probably paying for it in a roundabout way anyway as all consumers end up doing, but the fact is there’s probably never been, well, there has been a better time to get a mortgage in Spain, but in terms of how easy it is to actually go through the process, get it, and the costs involved, there probably hasn’t been a better time to get a mortgage. And Spain is very kind of user friendly now with mortgages. It used to be that that wasn’t the case, but now it’s competitive, it’s right up there in terms of offering the best deals. So yeah, I think it’s worth exploring, even if you are dead set against it, you’re sat in Brussels and you’re like, “No, no, no”. Have a look at it. Have a look at it.

Mark: Yeah.

Sean: It costs you nothing to do the research.

Mark: Absolutely, and from time to time I see comparisons with say Portugal, and the impression I get is that the Spanish mortgage market is more transparent, it has better deals and significantly more in favour of borrowers than the Portuguese market.

Sean: I found that as well. And I think it’s one of those things, the Spanish always think that Portugal is like the poor relation in terms of infrastructure and ability to do things, and I think it’s a little bit true. It’s like the UK is behind the US, I think Portugal is a little bit behind Spain in terms of, you know, getting on top of things.

Mark: Yeah. Catching up.

Sean: Yeah. And you know, it’s true. It used to be the case here in Spain that you go to the notary’s office and people were typing with one finger because the sister was off and she’d just come in to help out, and it’s a bit like that in Portugal sometimes as well. I think it’s improved, it’s improved in Spain, but you can see that Portugal’s just a few years behind. And so I think that applies generally when it comes to business and commerce. And I think you’re right, I think the Spanish just are a little bit more transparent and a little bit more commercial in their thinking at the moment. Thank you so much, Mark, for making the effort to join me today. I’ll let you get back to the sun.

Mark: Always a pleasure.

Sean: And I will see you next time. Obviously if anyone has any thoughts, comments, criticisms, whatever, please just email us.

Mark: Or any subjects people would like us to, we’ve had a few suggestions and we always do get round to them.

Sean: Yes, I know, I know. So if anyone has any ideas, do let us know. Anyway.

Mark: Very good.

Sean: Many thanks. You take care.

Mark: Thanks , speak to you next time.

Sean: Bye

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