Spain sees 42-percent spike in mortgage defaults

It used to be that Spaniards would stop paying all their other bills before defaulting on their mortgage payments. But after seven years of crisis, that is no longer the case.

Between 2012 and 2013, the banks listed on the blue-chip Ibex 35 index – Santander, BBVA, CaixaBank, Bankia, Banco Popular, Sabadell and Bankinter – saw their bad loans for home purchases rise from €17.2 billion to €24.5 billion. This 42-percent rise represents an unprecedented spike since the crisis broke out in 2008.

Back then, mortgage non-payment rates were 0.5 percent, and this figure remained steady at 2.4 percent until the end of 2010. But by 2012 the rate had jumped to 4.5 percent, while December 2013 registered a historic high of 6.5 percent.

Experts consulted by EL PAÍS noted that if all the homes that banks had repossessed due to the impossibility of recovering their loans – which have already come off the non-payment lists – were also added, the default rate would really be closer to 10 percent.

Bad loans in general
have risen to 13 percent,
another historic high

The latest figures released by the Bank of Spain, reflecting October 2013 data, show that delinquent loans in general have risen to 13 percent, another historic high.

Experts agree that long-term unemployment is to blame for this worrisome situation. The latest official figures show that 2.13 million people on the unemployment rolls are no longer receiving any kind of check. Additionally, nearly 700,000 homes have no income whatsoever. This is a time bomb for social stability and it has already blown up in the banks’ hands. People are increasingly defaulting on their mortgages even though Spanish legislation makes borrowers put up all of their assets as a guarantee against their loan.

“Business defaults take place much more quickly, but mortgage loans have a social component that lenders themselves try to slow down,” says Íñigo Vega of British firm Nau-Securities. “Homeowners also try to delay this moment, especially in a country like Spain where people attach a lot of importance to home ownership.”

What’s happening in Spain has a precedent in Ireland, which experienced a similar real estate crisis. The delinquency rates for mortgages on first homes reached 18.4 percent in Ireland, three times higher than Spain, according to September 2013 data.

As for the future, Itziar Sola, an analyst at Analistas Financieros Internacionales in Madrid, believes that by December of this year the mortgage delinquency rate will rise to around €35.9 billion, four billion higher than the latest figures released by the Bank of Spain.