Banking on the Banks

Unless you are one of the lucky few to have recently won the Euromillions, the chances are that you, like the majority of the population will require a mortgage to finance the purchase of your next home.

In an ideal world, prior to commencing house-hunting you will already have visited the local lending institutions and have an offer in principle from your chosen bank or building society.That is the ideal scenario as it gives you, as a prospective purchaser the ability to negotiate confidently within your financial limits and also the possibility of securing the property at a keener purchase price, as your offer will only be subject to the mortgage lender’s valuation. However, in reality most prospective purchasers tend to have an approximate idea of what the local mortgage lenders will loan and approach them for a mortgage only after they have started house-hunting. In times gone by when the banks were eager to offer mortgages, this way of going about buying your home was not too much of a problem and rarely caused significant delays, but that is not the case anymore.

Although Gibraltar’s economy has escaped the worst of the credit crunch’s repercussions, the same cannot be said for our local banks and building societies – all of which originate from the UK. The ongoing banking crisis in the UK has resulted in a tighter lending criteria in Gibraltar, and it is of little surprise that the Chief Minister recently called on the local mortgage lenders to take a more realistic, local view when setting their lending criteria. Decisions on local mortgages are often made by the lending institution’s personnel in other countries who are unfamiliar with Gibraltar, and their decision as to whether to lend on certain properties are made with little understanding of the local property market. Take for example the number of local mortgage lenders who, in principle do not lend on residential properties with commercial premises beneath. Surely that cannot be the case, I hear you say… just look at Queensway Quay, Ocean Village, Tradewinds and the town area – all of which have retail premises beneath the residential units.

In reality, local mortgage lenders will look at each application on a case by case basis, but that also means they are able to cherry pick their clients, or as one mortgage lender recently told me, they will only lend to “gold plated clients” or those able to deposit substantial savings with them. This is far from reassuring for the majority of the local population and if allowed to continue will undoubtedly affect the property market. Older style properties, which make up a substantial part of affordable local housing within the private sector are also feeling the pinch of the mortgage lenders tougher criteria, and we have seen an increasing number of applications rejected on the basis of there being commercial units beneath in recent times. If left unchecked, this does not bode well for the local property market and some form of intervention by the Government may be the only solution.

In light of the local mortgage lenders tight lending criteria, it is now more important than ever to firstly establish how much they are willing to offer you and the type of properties they will lend on, otherwise you could be in for a lot of heartache further down the road. If you would like to discuss the options available to you, please contact us on 200 47777 or email