Number of mortgages granted by banks hits record low in February

Just when it seemed things couldn’t get any, worse they did. With Spain’s housing market now well into the fifth year of a dire slump, the number of mortgages granted in February saw the sharpest fall since the National Statistics Institute (INE) began compiling the series in 2004, when the sector was still in the grip of a massive boom that turned into a bubble and burst.

At the same time, house prices continued their downward spiral in the first quarter, heightening the threat to the balance sheets of a banking sector already heavily weighed down by toxic real estate assets.

The INE said Tuesday that the number of home loans granted by the country’s lenders in February declined 47.1 percent from the same month a year earlier, compared with a fall of 9.4 percent in January. The figure has now fallen for the past 22 months.

The total amount of money lent for home purchases in the month declined 54.8 percent from a year earlier to 2.77 billion euros, while the value of the average mortgage dropped 14.6 percent.

The number of mortgages granted fell across the country, with the biggest fall suffered by La Rioja where the decline was 70.8 percent. The regions of Asturias, the Canary Islands, Cantabria, Extremadura and Murcia and the North African enclave Ceuta also posted falls of over 50 percent, while the figures in the Basque Country and Navarre were in the low double-digits.

Separately, leading appraiser Tinsa said average house prices in the first quarter fell 9.2 percent from a year earlier after a fall of 11.5 percent in March alone. Prices have now fallen 28.6 percent from their highs at the end of 2007. Aragon led the falls with a drop of 16.2 percent followed by Navarre with 16 percent, Catalonia 12.8 percent and Madrid 11.7 percent.

The main drag on the demand side for housing is high unemployment, while on the supply side an estimated glut of around one million unsold housing units needs to be run down to get the market moving again.

However, there are also restrictions on bank credit due to the difficulties lenders are facing precisely due to the sorry state of the real estate sector. The Bank of Spain estimates that the banks are exposed to toxic property assets valued at 175 billion euros, with provisions eating up capital. With the wholesale markets virtually closed, Spain’s banks have had to make heavy use of European Central Bank funding.

To resolve the problems facing the banks, the government is considering requiring that lenders remove their toxic real estate assets and transfer them to separate companies. That would come on top of a process already underway in which the banks have to increase their coverage for potential losses on retail assets by 53 billion euros.