- Introduction by Nick Gibbs, Editor
Spain’s new Mortgage Laws are now in force. Whether your idea of a dream Ibiza home is a swanky apartment in Marina Botafoch, a rural do-er-up-er, or the dream family villa, you need to know the facts.
But the law also has important changes relevant to existing mortgage holders.
We are lucky to have Mortgage Specialist Bettina Lorenz take us through the complexities step by step.
For new buyers one of the most important decisions you will take is to put your purchase in the hands of a qualified professional. We’ll sing Bettina’s praises for her as she was too modest to do so in the article. I know from chatting to her that Bettina is already registered with the Bank of Spain (one of the new requirements). Whoever you talk to, ask to see their registration documentation, Ibiza does attract more than its fair share of scammers and charlatans. I know Bettina will be happy to provide her registration and references, she comes highly recommended.
Spanish Mortgage Law in Practice; What is Changing?
- By Bettina Lorenz, Mortgage Broker
Spain’s new mortgage law comes as a result of a European directive back in 2014. The European directive was focused on consumer protection. The Spanish law extends this in several ways.
The new law was passed this year, and published in the Official State Gazette (BOE) on March 15, stating the purpose of “Guaranteeing a safe, agile and effective legal regime that protects the type of operations (the granting of loans and credits with real estate mortgage guarantees) being a requirement that derives not only from the obligations imposed by European Union Law, but also from the undoubted benefits that it affords for the economy of our country”.
The new law aims to “enhance legal security, transparency and understanding of contracts and the clauses that comprise them, as well as the fair balance between the parties.” The credit crunch (crisis as it is known in Spain) did a lot of damage in this area, and regardless of European directive, many would agree that Spain’s mortgage regulations were in urgent need of overhaul as a result.
The regulations cover three different aspects.
- First, it contains rules of transparency and conduct that impose obligations on lenders and credit intermediaries.
- Second, it regulates the legal regime of real estate credit intermediaries and real estate lenders.
- Finally, it establishes the sanctioning regime for breaches of the obligations.
1. New distribution of mortgage expenses.
- To be paid by the bank:
The agency (gestoría)
The taxes (IAJD)
Their copy of the deed
- To be paid by the client:
His copy of the deed
As we can see, this distribution is a clear improvement for the consumer, who currently supports most of the coasts.
2. Early repayment becomes cheaper.
In a variable mortgage, the maximum charge for early repayment can be one of these two options:
- 0.25% only during the first three years of contract life
- 0.15% only during the first five years of the loan term
In a fixed mortgage, the maximum charge for early repayment can reach the following limits:
- 2% during the first 10 years
- 1.5% for the rest of the term
3. Commissions for delay
Commissions for delay may not exceed three times the legal interest of the money.
This measure is retroactive, this means that both the current mortgaged and the future, will be subject to these changes.
If you have been charged interest for late payment, you can go to the bank to claim the refund for said penalty.
4. 0% ‘floor clause’
For the benefit of people unfamiliar with the concept of floor clauses, Spain has had an ongoing legal dispute following mortgages that were issued under terms known as floor clauses, where the initial interest was very low, but rocketed during the credit crunch years. Many people lost their homes as a result and the banks ultimately lost their case with the clauses being declared illegal. Many people in Spain are now in the process of recovering money from the banks.
That is the background, but the new regulation of mortgages specifically prohibits the application of a minimum interest in variable mortgages. Therefore, the banks can never incorporate the floor clauses anymore and they are not allowed to consider a 0% Euribor when it is quoted in negative. However, a minimum rate of 0% is established by default for all mortgage loans.
5. New regulations on changing lender
With the new mortgage law, we go back to the origins of 1994, when by legislation it allowed clients to change banks whenever they wished. This legislation was modified in 2007 and the client had to stay with the current bank if it offered an offer that matched that of the other bank. With the new mortgage law, you can leave even if your bank matches the offer.
Subrogation / Novation of variable-to-fixed-type contract
- The costs of registration fees are reduced.
- Notary fees are reduced.
- The subrogation and novation commission are limited to:
- 0.15% commission for the first 3 years. From the 4th year does not apply.
- This compensation is retroactive.
These conditions do not apply in the case of changing the mortgage from fixed to variable.
6. Multi-currency mortgages
New flexibility is introduced governing the ability to transfer mortgages to other currencies.
7. Limits on linked products
This point has caused a lot of confusion in the implementation of the new law. It relates to the linking of secondary products to a mortgage interest rate. Typical examples are life or household insurance, the bank giving a lower mortgage rate if these products are also purchased from them.
In future, the products that can be linked for the reduction of interest are limited, but not completely eliminated.
With the new regulation of mortgage loans, the linking of products can only be contracted when it gives a benefit to the consumer. This means that you can take out compulsory life or household insurance with a different insurance company away from the bank and it will not affect interest. However, the linking of cards and pension plans shown to be beneficial to the borrower will not be exempted.
This clause also specifies that banks cannot pay their staff according to the number of mortgage loans granted, a step to remove the temptation of overselling by banks,. Also that the banks must demonstrate that all applications have been rigorously studied.
8. More regulation for financial intermediaries
The new mortgage law also devotes a whole chapter to financial intermediaries (also called mortgage brokers) and private lenders.
The activity of these agencies and companies will be supervised by the Bank of Spain, although those that only work in a specific region will be controlled by the corresponding autonomous community. The brokers have to be registered in the registry of the Bank of Spain. Before, not all of the mortgage brokers were registered in the current valid state registry.
9. Minimum of 12 missed payments for property repossession.
This is one of the most important measures of the Law regulating Mortgages.
Specifically, the bank cannot initiate the repossession foreclosure process until the following limits are reached:
- Minimum 12 unpaid instalments or up to 3% of the unpaid loaned capital if it occurs in the first half of the mortgage.
- Minimum 15 unpaid instalments or up to 7% of the unpaid loaned capital if it occurs in the second half of the mortgage.
10. Protection of the future mortgaged: transparency and clarity.
The New Process And The Role Of Notaries
The entry into force of the new Law regulating mortgage agreements on June 16 has involved the promotion of notaries in their role as impartial adviser to the consumer and guarantor of legality and transparency in the whole process of buying and selling residential housing.
The purpose of all this modification is that the client is better informed and knows what they are going to sign. For this reason, the borrower will have the right to go to the notary free of charge for an explanation.
Until now the consumer had just three days to go to the notary to consult on any doubts about the mortgage loan and the sale of the home. Now this is increased to ten days. The consumer can choose the notary by location, trust or prior knowledge. Price will not be an issue as all notaries charge the same for the same service, with the option of making a maximum 10% discount.
The notary will clarify of all the clauses and must inform the consumer of any abusive clause.
In addition, with the new regulation of mortgage contracts, notaries will have to give a test to the buyer of the house to make sure they have understood all the requirements and conditions of the contract.
To conclude, the notary must sign a document indicating that the future purchaser of the home has clearly understood all of its obligations as a borrower. For his part, the buyer must sign another document to confirm that he has understood everything perfectly. In the event that the consumer or notary does not sign this document, the formalization of the contract would be annulled.
The process notary-bank-client:
First, you must inform the entity (usually a bank) selected so that it sends the public employee, through a secure platform, all the documentation related to your loan.
This includes: the project of the loan contract, the European Standardized Information Card (FEIN), the Standardized Warnings Card (FIAE), the simulation of the periodic fees that should be met in different scenarios of interest rate evolution (Maybe that’s why fixed-rate mortgages are also popular at the moment) and a document about the expenses associated with the public deed of the mortgage.
The bank’s proposal has a binding offer character for 10 days, that means, the consumer can back down, but the entity cannot.
When the notary has received all the documentation and verified that it is correct, the client meets with them without the presence of real estate agents, banks or promoters.
If something is missing, the notary requests it and the ten-day period is stopped.
If everything is complete and the client agrees, the notary will draw up a notarial certificate, free of charge, in which he will record the proven facts and the explanations given to the consumer. In this way, “the process is protected” in the face of possible future complaints from buyers due to ignorance of the conditions or non-compliance of the same by financial entities.
To finalize, the notary sends the minutes to the bank and everything is ready for the signature of the deeds of sale and of the mortgage loan, where the public employee will once again influence the agreements and conditions between the parties.
The notaries are going to dedicate more time to the consumer, but the majority of them want the change as a way of guaranteeing the security and transparency of their service.
The likely reality of the new mortgage regulations regarding bank charges.
At first glance it seems that the new Law regulating Mortgages greatly benefits the borrower.
However, it is estimated that the bank will charge the client in the form of other commissions so that its overall income from the provision of a mortgage minimally does not reduce. What you gain from one hand is taken away by another.
It is expected that each bank will take different measures, in case of raising the mortgage loan interest this could mean an increase of 0.215%, or apply a higher administrative fee.
These possible increases will depend on the relationship between the client and the bank or the negotiation of a professional broker.
I hope you have found this guide useful. If you have any further questions or wish to discuss your own mortgage needs, please do not hesitate to contact me.
+34 626 145 616