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Risk assessment for non residents the flaws within the Spanish Banks

Whilst it is perfectly understandable that Spanish Banks would increase their risk assessment of non resident mortgages in current environment and given background to current crisis; how this is being implemented should cause concern for all those involved on getting Spain back on its feet.

Key sensible changes have been

• Bank now link to a percentage of valuation or purchase price whichever is the lower
• All banks require to see and validate credit files of non residents in countries where credit files are available
• Most banks require to see SA302’s for self employed individuals instead of just completed self assessments
• Bank generally undertake checks to ensure validity of employer references and accountants references.

These changes help banks avoid the numerous false Spanish mortgage applications that they were caught out with in the height of market when lack of understanding of other countries documentation and lack of experience in interpreting them led to fraudulent applications being the norm.

The problem now is that Spanish Bank underwriting has regressed to tick box assessment with no ability for a risk manager to make sensible judgements about what an application tells them in totality about affordability. The environment for employees within banks means they are running scared and more nervous about what would happen to them if they signed off something that went bad than saying no to everything on the basis this removes any risk for the bank.

What they are missing is the point that the bulk of current arrears will have come from employed individuals on average wages who either overstretched themselves or self employed individuals who drew all income made each year leaving no surplus of profits should things become difficult within any given year of trading.

Between the years of 2002 to 2004 the bulk of mortgage applicants came from a demographic group that included the higher rate tax payers, slightly older and established individuals in either their own business or employment and those specialising in industries like Oil, Mining and other such offshore activity.

For many years until 2006/2007 the banks had arrears books that would make the most cautious Risk Manger very happy. Arrears were almost unheard of and repossessions non existent this was a reflection of the type of applicants they had approved to this point .

The problems only started when average earners overpaid for property at the height of market or were convinced to put in a false application by unscrupulous brokers and agents. Linking to valuation often meant the buyer input little or none of their own cash and were not informed of future repercussions that could occur in a default situation in their country of residency. Easy lending, few checks and 100% loans convinced many people to buy on the basis they were personally taking on no risk.

The issues were therefore lack of checks by banks, lending to the masses and linking to valuation solely.

Perversely we are now back to a market where the buyers are in general self employed individuals with strong businesses that have come through the worst of the current recession unscathed; specialist workers and those well established in their industry or profession. These are the very people the banks should be lending to and analysis of their back books going back some years would evidence this.

As with most higher net worth individuals it is however rare that their finances are completely straight forward. A company owner will never drawdown all the profits their company makes and pay unnecessary tax. A senior executive will almost certainly have performance related and pay offshore workers will not have tax returns if they work in non tax paying jurisdictions and will almost always be on rolling or fixed term contracts rather than permanent ones.

Because the banks now have reverted to tick box lending assessment rather than proper underwriting they no longer want to consider the following as this would require sensible human intervention and interpretation using all the evidence in front of them

Incomes available but not drawn on personal tax returns
Dividend incomes
Rolling or fixed term contracts for specialised workers
Performance pay and bonus

They are often precluding from borrowing the very people they should be lending to.

With the right advice and with the right packaging it is still possible to convince a handful of banks to deal with non standard clients the banks are however missing an opportunity to kick start the property economy and their own mortgage book with quality applicants that history would dictate are unlikely to default. They have swung the pendulum so far back as a knee jerk reaction to their situation rather than actually making well thought out commercial decisions based on factual historic data. Before they did not understand how to assess in the negative and now they have lost the ability to assess in the positive.

Article written by Spanish mortgages industry expert Heather Chambers of IMS mortgage Solutions Spain.
Contact: heather@imsmortgages.com for all your financial needs.
 

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Have you bought at Polaris World already? Maybe you want to look at improving the terms of your current mortgage or look to raise extra cash against your property. With the Pound to euro rate so low raising cash in Spain and transferring back to the UK is proving to be popular.

Mortgages in France

Getting a mortgage in France can be a daunting process owing to the language barrier and differing criteria and products with the French banks. The services of a French mortgage broker are invaluable to secure a loan in France for the purchase of a second home or investment property with a minimum of hassle and expense. We found the people at Athenamortgages.com to friendly and efficient offering a much wider choice of mortgages in France than other providers. Their services include a free decision in principle, comparative quotes offering a range of different euro mortgage products and full processing of the application. Their web site offers useful tools such as a French mortgage calculator and best buy tables offering a range of French mortgage products.

French mortgage application process

It is a quick and easy process to find out how much you can borrow in France. After a five minute conversation with one of the brokers, you can quickly have a good understanding of the maximum loan you could comfortably achieve in France. The discussion then turns to the kind of rate you would like, from pure variable mortgages based on the 3-month Euribor, to capped and fixed rates, each product type is displayed clearly side by side in a comparison sheet. Once a loan has been selected, you will have to provide supporting documentation to obtain your French mortgage, your last 3 months payslips, bank statements, proof of identity and tax documentation. As soon as the brokers have the documentation the time it will take to receive the offer should be no more than a couple of weeks.

The advantages of French mortgages.

French mortgages offer those outside the EU the opportunity to take advantage of high levels of loan to value (LTV) to finance their property purchase in France. Releasing funds from a property in another currency to make a purchase in France should only be done if the currency exchange rate is extremely advantageous, as there is a large currency risk involved in this transaction as if the exchange rate changes by 20% this means that if you had to sell the property in France quickly, you might lose of to 20% of the amount you invested. The ideal scenario is to operate two mortgages, one in France and one in your home country. The strategy would be to remortgage each one when the currency conditions were favourable to pay off a chunk of the capital on the other. With this strategy it is possible that you could in fact pay off each property far more quickly.
 

 


 

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