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Housing Finance Market Overview
In Spain, housing finance is mainly raised from banks, with the Santander bank taking the largest market share. Mortgage Brokers have an important intermediation role as about 55 per cent of all mortgage transactions were processed through mortgage brokers in 2005. The housing finance market has been growing with a fast pace in Spain. The mortgage debt to GDP ratio increased from 29.9 per cent in 2000 to 61.6 per cent in 2007.
The Market from the Perspective of the Demand Side
In Spain, the usual maximal loan-to-value ratio amounts to 80 per cent. The Spanish tax authorities grant a 15 per cent tax relief on the investment for the acquisition of the primary residence up to a certain limit. This amount is deducted on the calculations of income tax. Furthermore, 15 per cent of an amount saved can be deducted annually from income tax if those savings are used within 4 years for the acquisition of owner-occupied property. In 2007, around 90 per cent of home loans in Spain had a variable instead of a fixed interest rate.
House Price Development
Housing prices have risen very fast since the year 2000 with an average annual growth rate of almost 14 per cent till 2007. Therefore, in the course of the financial crisis, house prices have already declined from the middle of 2007 to the end of 2008 by almost 6 per cent.
Since the Spanish banks were not able to satisfy the huge and growing demand for mortgage loans with customer deposits only, Cédulas (mortgage Covered Bonds) and bonos de titulización hipotecaria (mortgage backed securities) have gained quickly an enormous importance for the Spanish mortgage market. In 2007, outstanding Covered Bonds amounted to over 40 per cent of the outstanding residential lending and outstanding residential mortgage backed securities to almost 20 per cent.