Spain Foreclosures and Bankruptcies: Is the System Ready for an Uptick?

In this commentary, DBRS Morningstar analyses some key metrics related to the evolution of foreclosures and bankruptcies in Spain over the last few years.

Summary highlights include:
-- Latest available data on the number of foreclosures initiated shows that 2022 was the year with the lowest number of foreclosures in the last decade. Bankruptcy numbers show a mixed trend: while company bankruptcies remain fairly stable, individuals (including self-employed) have experienced a surge without precedent in the last quarter of 2022.
-- The average duration of foreclosures has been steadily increasing during the past decade but there are relevant differences between regions. In the case of bankruptcies, although average duration has also experienced an increasing trend, most of the regions have started witnessing a relevant reduction since recent highs.
-- Even though since February 2021 the majority of new mortgage originations have had fixed interest rates, it was not the case for more than 12 years before that and therefore the current stock of mortgages in Spain has mainly variable interest rates, making it more vulnerable to defaults in the current environment of rising interest rates.

“NPL workout entails a mix of judicial and out-of-court strategies but it is evident that the speed of the foreclosure process is crucial for NPL securitisation performance. Having average foreclosure durations at or close to its maximum in most regions while the number of declared foreclosures is quite low is definitely not good news, especially if foreclosures start to pick up. Most of the mortgages in our rated transactions are at an advance legal stage, so the impact of further delays is somehow mitigated, but definitely something to carefully consider when analysing ‘fresh’ NPL portfolios, where foreclosures still need to be initiated”, stated Alberto Cruces de la Rosa, Vice President of European NPLs at DBRS Morningstar.