Families will find it even more difficult to access a mortgage: the Bank of Spain believes that banks will toughen conditions more
The Bank of Spain confirms the trend that began a little over a year ago, as a result of the new monetary policy focused on an unprecedented rise in financing costs. During the second quarter of 2023, Spanish banks continued to restrict the supply of credit, both for households and companies, and the drop in demand for loans also continued, albeit more calmly, considering the current context.
The point is that the body led by Pablo Hernández de Cos believes that the situation will continue during the second half of this year and that, therefore, it will be more difficult for families to access a mortgage since the banks will continue to increase the requirements. The fundamental reason given by the Bank of Spain? Quite simply, the rise in delinquency that has already begun to be seen in the system, although in a very timid way. Bank arrears, not only for households but also for companies, have accumulated two months on the rise, reaching levels of 3.59%, which are still very low, but the curve has turned.
According to the Bank Loan Survey published this Tuesday by the regulator “both the granting criteria and the conditions applied to new loans would have continued to tighten, in a general way, for the fifth consecutive quarter”, although in a “more moderate way than the first trimester”. This situation responds, says the Bank of Spain, to “an increase in the risks perceived by financial institutions, a lower tolerance for them, and the increase in financing costs for entities and a lower availability of funds”. In other words, the banks are already covering themselves against what may be to come and, therefore, they prefer to avoid taking on more risk when, in addition, it is also more difficult for them to finance themselves in the markets after the ECB has shut down to the free liquidity bar that the sector had through the so-called TLTROs that had to be partially returned at the end of June.
LESS CREDIT
Looking ahead to the second half of 2023, the agency believes that it will be even more difficult for households to access a mortgage, something that they justify by the rise in delinquency that “could favor, once again, a slight general tightening of credit conditions” , according to the Survey. Likewise, the banks believe that the fall in the demand for loans will also continue given interest rates that are much higher than a year ago, specifically some 400 basis points more..
However, and although the conditions have been tightened, the entities could somewhat lower the requirements that they ask of households in terms of consumer loans, with much higher margins or spreads for the banking sector than what they offer in Mortgages, a much more competitive terrain. With data for the month of May (the latest available), the weighted average rate for granting consumer credit to households stood at 7.96% compared to 3.71% for mortgages, slightly more than double.
The Survey also includes other outstanding aspects regarding loans to companies. Construction companies (not including real estate) are the ones that have suffered a greater tightening of the requirements to access bank financing from January to June. In percentage, the Bank of Spain calculates it at 25%. Brick is followed by the real estate sector, both for homes and for other uses such as offices or warehouses; the manufacturing industry and already behind the industry and commerce.
The forecast for the second semester is that banks continue to tighten the approval criteria for the first companies mentioned, those linked to construction and non-residential real estate, but not for merchants and firms linked to industry, services or energy..