Fitch: Spanish Housing Recovery Does Not Extend to Repossessions
OREANDA-NEWS. Loss severities on Spanish mortgage foreclosures have continued to rise even as the country's residential property market gradually recovers, Fitch Ratings says in a new report. We think the distressed property market in Spain is unlikely to share in the benefits of the wider recovery any time soon.
Average loss severities on repossessed properties sold in 1H15 were 61% of the loan balance at the time of repossession, according to our latest analysis, up from 53% last year. Average loss severities have grown steadily since the housing crash and are now double the level seen in 2009 and nearly 10 times that seen in 2007.
The Spanish housing recovery is uneven. Prime urban properties are benefitting from economic and credit growth, but many poor quality residential units are still vacant and unsellable in peripheral, economically weak areas. This large overhang and constrained demand, and the physical deterioration of repossessed homes, will keep loss severities on such assets high in the medium term.
The aggressive foreclosure strategies used by some creditors to clean up their balance sheets, and the legal and operationally complexities of repossession (especially of vacant properties), will also weigh on final sale values and recoveries.
Legislative changes may also affect property values, particularly for vacant houses. For example, Catalonia this year introduced a tax on some properties that have been unoccupied for more than two years.
Loss severities vary with original loan-to-value (OLTV) ratios, and whether judicial or out-of-court proceedings (which tend to deliver higher and faster recoveries) are used, as well as with trends in property prices. For mortgages with OLTV above 80%, the simple average loss severity rate is 63% for 2014-1H15, compared with 37% for OLTVs below 80%.
Bank of Spain data indicate that just over half of foreclosures are completed in court, mostly relating to vacant properties, while the remainder are concluded privately between lender and borrower. In 1H15, loss severities on repossessions were around 6pp higher in judicial than in out-of-court proceedings.
Our full findings can be found in "Spanish Repossession Analysis 2015" published today. This is the sixth report in the series and is available at www.fitchratings.com, or by clicking the link below.