Congress has finally given the green light to the new mortgage law whose main objective is to give greater security and transparency to banks and customers.
Implementing this new law has become an urgent matter because Spain is already over 2 years late and the European Commission has threatened to levy fines of up to €100,000 per day if Spain does not pass the bill before the end of this year.
We have listed below the main points, in brief, of changes to the new mortgage law.
- Only a few weeks ago the Spanish Supreme Court had created quite a stir on the subject of Stamp Duty by deciding that the borrowers would be the ones to pay it on all new mortgages. But, the following day, the government stepped in by announcing that the banks would in fact be paying all the costs linked to the signature of a bank mortgage, such as the AJD tax, notary fees, title deed fees etc.
- Reduce the commissions on early payments: On the variable interest rate loan, the new limit is 0,25% after 3rd year and 0,15% after 5 years. Fixed rate loans 2% during first 10 years then 1.5% thereafter.
- Repossession procedures to take place when a borrower falls in arrears of his/her payments by more than 12 months (not 3 months as before) or 3% of the loan.
- The costs involved in moving a mortgage from one bank to another will be shared by the borrower and the receiving bank of the loan.
- A new feature of the legislation pertaining to ‘green mortgages’ is that energy efficient dwellings or those using renewable energy are exempt from paying the tax of documented legal acts (AJD). This specific regulation has been proposed by the People’s Party and allows you to sign the loan in the land registry at any time while this legislation is in effect.
- Banks are prohibited from forcing customers to hire products in exchange for granting the mortgage. If however, the product offered to the customer is to improve the conditions of the loan e.g. if the customer purchases the house or life insurance as a mean to lowering the differential (combined product), then the Bank of Spain will be responsible for monitoring the practice of the financial sector and detecting possible linked products disguised as combined.
- Any abusive or hidden clauses will be prohibited and all legalities or consequences should be made clear and understood by clients. An abusive clause is defined as inflicting harm (financial or other) on the client by the professional (private or public) who’s drafted the contract within a business relation. A collar clause is when both the maximum and minimum limits are fixed on a loan. In the past however, lenders with their understanding of the Euribor have taken advantage of this clause and tagged a collar clause onto the borrowers’ loan repayments in the knowledge that the ECB will move in their favour, fully aware that the customer is fixed in making over-payments unavoidable.
- The borrower has to go to the Notary before the day of signing the loan in order to go through the conditions of the mortgage. The visit will be free of charge and the customer will be required to sign a declaration as evidence that he/she has read and understood the terms and conditions of the loan.
- The new law will facilitate changes of variable-rate mortgages to fixed-rate mortgages. These conversions will be encouraged by reducing the maximum commission charged to 0,15%
- In order to avoid the risk of non-payment, banks will be required to incorporate more effective risk analysis procedures to ensure that a client is solvent before granting them a loan.
We genuinely hope you find the information above helpful and goes someway to explaining the property mortgage situation here in Spain.
As you expect in the current healthy property climate, there are plenty of banks offering competitive rates and competition for your business is high.
We, at Terrasur Homes, are able to help you find the best mortgage and best deal for your property purchase. Although we are not involved in the mortgage business, we know the right people who are, so if you are looking to buy a new apartment or a resale property and need a mortgage that suits your current situation, then get in touch with us today and we will be happy to help.