Home loans in Spain increased during the second quarterdespite the fact that the criteria for granting loans and the conditions applied to the credits granted slightly hardened as revealed by the Bank of Spain Survey on Bank Loans. However, according to data from the supervisor, the growth of these loans for house purchase was at a lower rate than in previous quarters.
Financial entities point out that growth is due to the “positive” situation of the housing market and the “favourable” impact associated with the low level of interest rates which, in some cases, have not yet included the increase in the reference rates for these loans. Secondly, the hardening of the concession is due to an increase in the perceived risks (mainly linked to the deterioration of the general economic outlook and the worsening of the solvency of borrowers) and also, although to a lesser extent, to a lower tolerance for risk on the part of financial entities and to the higher financing costs borne by the banks. In line with this evolution of the offer, the percentage of rejected requests for funds would have grown.
The general conditions applied to these loans would also have tightened between April and June, a fact that had not happened for two years, and which would have translated into a certain increase in the margins applied, both to ordinary loans and, to a greater extent, those most at risk. This would be a consequence, mainly, of the higher financing costs of the entities and, to a lesser extent, of an increase in the perceived risks and of a lower tolerance to said risks on the part of the banking entities. However, the strong competition existing in this segment would have caused, in some entities, that the higher financing costs incurred were only partially transferred to the interest rates applied to these loans.
For the third quarter of the year, financial institutions anticipate that the criteria for granting loans for home purchase will be tightened againalbeit slightly, and they forecast that demand will drop considerably, breaking the upward trend that had been registered in this segment since the second quarter of 2021.
Business credit and consumer credit
On the other hand, the demand for credit from companies and households for consumption fell between April and June 2022. This evolution is framed in a context of growing uncertainty (in which an increase in risks is perceived) and the normalization of monetary policy. This situation has also conditioned expectations for the third quarter, in which banks anticipate a prolongation of the contraction in credit supply and a decrease in demand in almost all the segments analyzed.
On the side of demand by companies, it would have been reduced due to “several opposing effects”. On one side, the supervisor explains that the request for loans would have increased due to the greater needs to finance inventories and working capitalin a context of rising raw material costs, the increase in business reorganization and debt refinancing operations, as well as the drop in fixed-income issues among large companies (due to the increase in costs associated with this type of financing).
The increase in the general level of interest rates, the decrease in the needs to finance investments in fixed assets and a greater use of internal financing “would have led to a decrease in applications”.
For the third quarter, Spanish financial institutions expect a continuation of the contraction in credit supply and a moderate drop in loan applications in all segments.
As for the tightening of the criteria for granting loans to households, whether for house purchase or for consumption and other purposes, the Bank of Spain points out that this evolution would be a consequence, “fundamentally”, of an increase in perceived risks (linked mainly to the deterioration of the general economic perspectives and to the worsening in the solvency of borrowers) and also, although to a lesser extent, of a lower tolerance to risk on the part of financial entities and of the higher financing costs borne by banks.
The demand for credit by families for consumption and other purposes “would have been slightly reduced” in the second quarter, mainly due to “a decline in consumer confidence” and, to a lesser extent, due to the “increased use of savings” to finance these purchases.