Tags: mexico | housing | refinance | boom

Mexico's Housing Refinance Boom Seen Lifting Spending

Friday, 26 September 2014 06:46 AM

When Arturo Sosa, who lives in the Polanco neighborhood of Mexico City, refinanced his mortgage this year, he decided to spend some of the money he saved.

“I took a weekend trip to Vegas,” said Sosa, who lowered his payment by about 4,000 pesos ($300) a month since refinancing with Banco Santander SA in April. “The rest I’m saving for the soon-to-be-born baby.”

Homeowners in Mexico are taking advantage of record low mortgage rates that have spurred refinancings. After the collapse of the country’s three biggest homebuilders last year stalled new construction and slowed lending, banks including BBVA Bancomer SA and HSBC Holdings Plc have turned to refinancing for growth. That could provide a jolt to Mexico’s sluggish economy by giving consumers more money to spend.

“The impact that this has on the economy is that it frees up a part of people’s income to be spent on consumption, which we see spiking upwards in the coming months,” said Carlos Capistran, chief economist at Bank of America Corp. Mexico in Mexico City.

The average interest rate for all types and maturities of home loans dropped to a low of 10.8 percent in July, from 12.1 percent a year earlier, according to the central bank. Policymakers have cut benchmark borrowing costs by 1.5 percentage points since early 2013.

Mexican mortgages were refinanced or paid off at an annual rate of 11 percent as of June, the fastest in seven years, according to Fitch Ratings, citing data on loans packaged into securities.

Competitive Rivalry

“Prepayment of all loans rose significantly and is expected to keep rising in the coming years,” said Enrique Margain, mortgage director at Bank of Nova Scotia’s local unit in Mexico City. “This is now a sector with high competitive rivalry.”

The economy expanded 1.1 percent last year, the slowest pace since 2009. The central bank lowered its forecast for the third time on Aug. 13, saying gross domestic product will rise 2 percent to 2.8 percent, down from its previous estimate of 2.3 percent to 3.3 percent.

The increase in mortgage refinancing “is happening in a context where consumption has been weak,” Bank of America’s Capistran said.

Home Sales

Banamex, the local unit of Citigroup Inc., and Bank of Nova Scotia, which has a 19 percent home-loan market share in Mexico, advertise refinancing bargains online. The banks are encouraging borrowers at other lenders to switch to them with no-fee refinancing deals.

Lenders are promoting refinancing partly because fewer new homes are getting built and existing housing sales have been weak for most of this year, says Ramon Ortiz, an analyst at Corp Actinver SAB who covers the housing sector.

“Those who are looking for a lower rate now are likely to keep their homes” and refinance their mortgage, said Ortiz, who is based in Mexico City.

Mexico’s three biggest homebuilders filed for bankruptcy last year after the federal government transferred housing subsidies to favor urban apartment construction close to city centers. That eroded the value of development projects and landholdings in far-flung commuter areas.

Builders completed 142,000 homes this year through July, which is 1.8 percent lower than the first seven months of 2013, 18 percent below the same period in 2012 and 27 percent down from 2011.

Lowest Rates

As the housing market began to decline in 2012, HSBC’s local unit cut its fixed rate for a 20-year mortgage for a new home to 8.7 percent from 10 percent the prior year, according to the bank. That marked the first time in Mexico that rates for any kind of mortgage had dipped below 10 percent, said Oscar Torres, an independent mortgage broker.

HSBC last year dropped its rate for a new home loan further, to 8.45 percent, said Fabricio Parada, the bank’s head of mortgage credit in the country.

“The rates that exist now in Mexico are the lowest that I’ve seen or even remember for the last, maybe 25 years,” Parada said. “It’s the right time for a person that took out their mortgage maybe five or six years ago, when rates were around 13 percent, to switch.”

Profit Margins

HSBC’s move triggered a rate war among banks for all mortgages, including refinancing, Torres said. The average rate to refinance a mortgage in Mexico is currently 9.4 percent, also a record-low, he said.

Bank of Nova Scotia offers a fixed rate of 8.75 percent to refinance into a 10, 15 or 20-year loan. As a bonus, the bank will cover the 15,000-peso cost of updating the property details in the country’s home registry.

By dramatically lowering rates last year, banks are “betting on an increase in customers, sacrificing profit margin,” Margain, the bank’s loan director, said. “Profitability for mortgages is at a historic low.”

Banco Santander, one of the largest banks in Mexico, reported 32 percent growth in total mortgage lending in the second quarter compared with the same period the year before. Bank of Nova Scotia, which has a market share of 19 percent on home loans in Mexico, said mortgages expanded 19 percent in the same period. Lenders declined to reveal how much of this growth came from refinancing.

Banks that consistently posted increases in mortgage lending in the past three quarters, such as Bank of Nova Scotia, Grupo Santander and HSBC, also have recorded profit gains, according to their filings.

Saving Pesos

Sosa, 38, who works in insurance sales, noticed the drop in rates earlier this year and decided to refinance his four-year- old, 3.2 million pesos mortgage from BBVA Bancomer, the local unit of Banco Bilbao Vizcaya Argentaria SA.

His old loan carried an interest rate of 12.95 percent, for a monthly payment of 36,000 pesos. His new rate from Santander Mexico is 8.49 percent, for a monthly payment of 32,000 pesos.

The savings is enough to recoup his total refinancing costs of about 49,000 pesos in a little more than a year. What’s more, he’ll pay off the mortgage in 15 years, or a year earlier than his old mortgage.

“The 4,000 pesos I’m saving every month are some very good 4,000 pesos,” he said.


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When Arturo Sosa, who lives in the Polanco neighborhood of Mexico City, refinanced his mortgage this year, he decided to spend some of the money he saved."I took a weekend trip to Vegas," said Sosa, who lowered his payment by about 4,000 pesos ($300) a month since...
mexico, housing, refinance, boom
Friday, 26 September 2014 06:46 AM
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