Mortgage lending growth at lowest level since 1995

19 February 2008

MADRID – Growth in outstanding home loans in Spain slowed last year to its lowest level in 12 years, confirming the end of the country’s decade-long property boom.

The Bank of Spain said Monday the value of outstanding mortgages at the end of 2007 stood EUR 646 billion, up 13.2 percent from a year earlier. That was the slowest pace in lending since 1995 when the central bank first began compiling this series of figures.

As the price of housing escalated, Spaniards were forced to take out increasingly large mortgages. This is clearly seen in the growth rate for outstanding home loans, which stood at 23.7 percent in 2004, moving to 24.3 percent in 2005 before slowing to 20.4 percent in 2006.

The Bank of Spain said the slowdown reflected tighter loan conditions imposed by lenders in the last quarter of the year, in part due to poorer prospects for the property market.

While Spain does not have a subprime mortgage market, the credit crunch unleashed by the crisis in the high-risk home loan segment in the United States also affected Spanish banks, which are reliant on overseas financing partly because of a low domestic savings rate.

The pace of consumer finance lending also slowed to 11.2 percent at the end of 2007, the lowest level since 2001. Loans for items such as car purchases grew at an average of 12.5 percent annually in the period 2002-2006.

Companies, particularly real estate developers, have also been finding it tougher to secure finance amid signs the domestic economy is starting to slow.

A series of interest rate hikes in the euro zone since the end of 2005 have also served to depress the housing market in Spain and made it harder for some household to meet monthly mortgage payments.

The Bank of Spain also said yesterday that this was reflected in a further increase in loan delinquencies of all types in December of last year. Doubtful loans as a percentage of total outstanding lending rose for the sixth time in a row in the last month of 2007 to 0.837 percent, compared with 0.628 percent the previous year.

The figure for December is still well below the average of about 2 percent in Europe and 4 percent in the United States.

Subject: Spanish news