Mortgage refinancing on borrowed time

LAST UPDATED: 24 Nov, 2013 @ 18:26
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Mortgage refinancing on borrowed time

MORTGAGE delinquency has increased significantly following the introduction of more stringent debt disclosure guidelines from Spanish banking authorities.

Until recently banks have been refinancing mortgages for struggling home and business owners, enabling them to stay afloat for longer than otherwise would have been possible.

The Bank of Spain said that around one in 12 mortgages had been refinanced over the past few years.

The process has seen lenders offer lower interest rates and easier terms of refinancing, which has also enabled them to bury growing risks in their credit portfolios and avoid recognising losses on debts they are unlikely to recover.

But since April lenders have been obliged to re-evaluate and disclose their refinanced loan books, following concern some had been exploiting loose guidelines to mask the declining creditworthiness of their clients.

Under the new rules, a range of loans have been reclassified, resulting in a doubling in the number of refinanced mortgages that have gone sour over the past six months.

In total, doubtful loans, including those to businesses and government entities, now account for 46% of the refinanced total, compared to 36% in December.

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