New Spanish Mortgage Law Protects Homeowners & Opens Market

Spain has been dragging its feet in implementing the European Courts’ ruling on the illegality of some of its mortgages, specifically the much maligned floor clauses that have left many Spanish mortgage holders in crippling debt since the credit crunch resulted in hugely increased rates and so repayments.

Spain has been told to get on with it or face fines of 100,000€ per day until the law is passed.

  1. The law will completely remove the floor cause type contract from the market. You will not need to worry about whether you have a hidden floor clause as they will be totally illegal (though should of course always seek independent advice)
  2. The new law will also extend the period before which a bank can seek repossession if the mortgage is in default. It used to be the case that if a single payment was late the banks could act to repossess. This was increased by the Spanish Government to 3 months. Now Europe is telling them it needs to be longer – 12 months or 3% of the Capital.

Writing on Spanish Property Insight, Raymundo Larraín Nesbitt of Larraín Nesbitt Lawyers says that although the law is needed in terms of increasing consumer protection, it will also be very good in freeing up lending. Raymundo makes the point that the banks are still sitting on their hands reluctant to lend until this long overdue change has been ratified. Though the overall consequences of the floor cause situation will leave the banks hugely out of pocket, at least they will now know the situation and so be prepared to start lending again more positively.