Spain’s new mortgage laws came into effect last month and introduced a range of new measures, which favour new borrowers as opposed to the lenders.
The new legislation follows an EU consumer credit directive in an effort to standardise the mortgage laws among EU member states and provide greater transparency for those taking out a mortgage loan.
Existing mortgage laws in Spain were previously very much on the side of the banks, however the new changes will favour borrowers more and will mean lenders will also have to bear the brunt of the costs usually associated with buying a property in Spain.
Tougher For Banks To Repossess Property
Previously, a lender could instigate the repossession process if a borrower was more than three months behind on their mortgage payments.
Under the new rules, a lender may only repossess a property if the borrower has more than 12 months of arrears or where the repayment debt is greater than 3 percent of the total capital loaned. This only applies to the first half of the mortgage term.
If the borrower gets into arrears in the second half of the mortgage term, the rules are then extended to 15 months late or where the arrears are greater than 7 percent of the total capital loaned.
In addition, any late payment fees are capped at 3 percent, opposed to the previous 12 percent.
The new regulations will mean greater transparency on the part of the banks who must make sure that customers fully understand all of the conditions of the loan so that they are able to make an informed decision.
A part of this is that the borrower will need to meet with a notary 10 days before completion, so that the notary can review the loan with their client and verify that it is in accordance with Spanish law.
The notary will also ask their client a series of questions to ascertain whether they fully understand the consequences of taking out the loan and that they have received all of the necessary documentation and information from their lender.
If the notary is unable to verify that the client has received all of the required information, they may draw up a statement confirming the situation. As a result, the mortgage public deed may not be signed.
More Mortgage Fees Will Be Paid By The Banks
The fees usually associated with taking out a Spanish mortgage can amount to between 10-15% of the property purchase price and can be a major hurdle for many looking to get on the housing ladder.
Under the new mortgage law, the banks will now have to pay these costs, which may include gestor fees, notary fees, land registry charges and any Spanish mortgage tax (Actos Jurídicos Documentados) which can be up to 2.5% of the mortgage amount.
The property valuation and origination fee will still need to be paid by the borrower.
It is important to note that the new regulations will only apply to mortgages taken out after the new laws came into effect on the 16th of June 2019.
No More Hard Sell
In the past, borrowers were almost forced to purchase life and home insurance by unscrupulous lenders looking to cross-sell.
Under the new regulations, borrowers will be free to take out any such insurance from a third party and not be held to ransom by lenders.
Floor Clauses Can No Longer Be Used
Prior to the new mortgage law, a bank or lender was able to implement what was known as a ‘floor clause’ to a customer’s variable rate mortgage. This meant that lenders were in a win win situation. If interest rates increased, they would profit, but if they fell below the floor clause, the floor clause rate would apply.
This will no longer be the case with the floor set a 0 percent of the mortgage rate.
As the mortgage rate is always higher than the EURIBOR rate, the changes will provide additional protection, especially where the EURIBOR is negative, which is currently the case.