The war over mortgage spreads is - or is still - raging. Novo Banco (NB) was the latest bank to tinker with the minimum profit margin charged, reducing it to 1% from 1.25%. The entity led by António Ramalho thus joined BCP and Santander, which also offer minimum spreads of 1%. Spain's Bankinter is still the only bank to offer a lower rate of 0.95%.
According to Jornal de Negócios, NB hadn't cut the minimum spread on mortgage loans for more than three years. With this update, the average minimum spread charged by the banks - 10 entities were considered - stands at 1.07%, around half the amount applied at the end of 2015 (1.95%).
For Filipe Garcia, an economist at IMF, “the bank's financing conditions remain very favorable and the banks have realized that the spread is one of the characteristics of credit that has the most impact from a commercial point of view”. Quoted by the publication, he said that “it didn't seem likely to see spreads below 1%”. “I get the feeling that banks are attracting customers with very aggressive spreads and then ‘recovering’ margin through other commissions,” he explains.
What is a spread?
The spread is one of the components of mortgage loans. In variable rate loans, the Nominal Annual Rate (TAN), known as the loan rate, is made up of the index and the spread. In other words: the TAN is equal to (=) the index plus (+) the spread.
As we explained in this article, the most commonly used index in Portugal is the Euribor, which varies between its different terms, so there will be no difference between banks if the rate is indexed to the Euribor of the same term, for example, the 6 or 12 month Euribor.
Mortgage business on the rise
The mortgage lending business continues to boom in the midst of the Covid-19 pandemic. And the figures recently revealed by the Bank of Portugal (BdP) show just that: in July, the volume of new mortgage lending operations totaled 1,385 million euros, more than in the previous month (1,297 million euros) and in the same period of the previous year (931 million euros).
All in all, in the first seven months of the year, banks lent 8,565 million euros to consumers to buy a house, 2.23 billion (36.5%) more than in the same period last year. You have to go back to 2008 to find higher figures.
Mortgage acronyms
Buying a house with bank financing is a process that involves some bureaucracy. And the language used is not always easy for consumers to understand. It is therefore important to decode some acronyms that are extremely important when borrowing money from the bank to buy a house, with the spread being just one of the indicators to take into account in the process.
Source: idealistanews