Check out the eight key measures of the new law on mortgages in Spain, which guarantees more protection for the borrower.
After its publication in the Official Bulletin (BOE) on March 16, 2019, the new law on mortgages came into effect on June 16, 2019. Among the novelties, a new distribution of charges between the bank and the borrower, the reduction of interest for late payment or early amortization, and the increase in the number of months of default before execution of a seizure. Buying in Spain should be safer for future buyers who are applying for a mortgage loan.
ANTICIPATED AND CLEAR BANKING INFORMATION
It was common for banks to give only 3 or 4 days before the signing of the contracts for the sale and lending of essential mortgage contract information.
From now on the law will oblige the bank to provide 10 days before essential documents for the borrower:
- a copy of the draft mortgage contract,
- a document showing interest payable,
- clear information on the costs to the bank and those of the borrower,
- the guarantee conditions of the insurance (s) associated with the loan,
- information on the service that the notary can provide under the loan agreement,
- the FEIN sheet (European Standardized Information Sheet) which details the loan granted,
- the FiAE sheet (Standard Information Sheet) which details the contractual clauses of the loan agreement.
MORTGAGE COSTS TRANSFERRED FROM THE BORROWER TO THE BANK
There had already been IAJD (the tax on documented legal acts) passed to the banks since the beginning of 2019 after the final decision of the Supreme Court.
There will be from June 16, the mortgage fees of the notary, the register of property and the “gestoria” (the management company acts) that will not be paid by the borrower, but by the bank.
The only mortgage fees remaining to be borne by the borrower are the “tasacion” (the estimate of the real estate) and the possible copies of the mortgage deed.
ENHANCED SOLVENCY ANALYSIS
With the new regulation, the bank is now obliged to study in detail the economic situation of the customer (and possibly his sureties) and his repayment capacity. In particular, it must take into account current and future incomes (especially at retirement if credit runs further), employment held, existing assets, realized savings, fixed and variable costs and charges, etc. . In addition, the credit history of the customer at the Bank of Spain is verified.
AN INCREASED ROLE OF THE NOTARY
The time is past when a person holding a pen in his hand was limited to read a dozen pages, without the customer having the opportunity to interrupt and ask him questions. From now on, the notary will have to:
- to answer all the doubts of the borrower the days preceding the signature,
- verify that the bank has provided the borrower with all the required documentation,
- check that the mortgage agreement contains no unfair terms,
- specify that the bank can not oblige the borrower to purchase other mortgage-related products, such as a retirement investment, life insurance or a credit card,
- and most importantly make sure the borrower understands what he is going to sign.
And all this is free for the borrower since it is the bank that pays! So take the opportunity to ask all questions to the notary before and during the act of signing the contract of sale.
LIMITATION OF REBATE OF REAL ESTATE CREDIT
For the first time, there will be a limit to the maximum commission a bank will charge a customer if it decides to prepay all or part of the debt of a fixed rate loan. Until now, only prepayments of variable rate borrowings were regulated; the commissions on these loans, which were already fixed by law, are also reduced.
The maximum limits set for prepayment fees for loans at a fixed interest rate may be up to 2% of the capital remaining to be amortized in the first ten years of the credit and up to 1.5% if the repayment is requested. after 10 years.
For the variable rate, the maximum fees were up to now 0.5% of the capital remaining to be amortized for the first five years of the loan, or 0.25% after. The new law sets the maximum rate at 0.25% for the first three years, 0.15% for the fourth and fifth years, and 0% after five years.
Unfortunately, this measure is not applicable to old mortgage contracts.
HARDENING OF SEIZURE CONDITIONS FOR BANKS
Upon the coming into force of the Act, the conditions imposed on a bank to apply its early maturity right on a mortgage (seizure) in which the borrower has not paid a certain number of monthly payments will be more restrictive.
In order for the bank to exercise its right of seizure, unpaid installments must exceed:
- 3% of the capital granted or 12 monthly installments if they occur during the first half of the term of the loan
- 7% of the capital granted or 15 monthly payments if it occurs during the second half of the term of the loan.
In addition, it is necessary that the bank has notified the pending payment to the borrower, giving it at least one month to comply.
This new regulation will apply to both new and existing mortgages, so the old clauses will be invalidated. Except in two cases:
- The borrower wishes to retain the old clause which is more favorable to him
- The seizure procedure took place before the entry into force of the new law
In a paper on the new law on mortgages, the Bank of Spain explains that the delay in the recovery of outstanding debts of banks could lead to a “certain tightening” of credit conditions, especially those applied to customers in a precarious situation. low income who have a higher risk profile.
THE NEW SYSTEM OF DELAY INTEREST
As far as late interest is concerned, there is a very important change. With the previous legislation, rates could reach 25%! What was considered abusive by the Supreme Court, which temporarily limited to 2% additional interest. The new law limits the additional interest to three points.
CHANGE MORTGAGE OR BANK IS EASIER
Bank charges apply when you switch from a variable rate loan to a fixed rate loan. If you do it between products of the same bank, it can apply a commission up to 0.15% maximum during the first three years of the mortgage, but after that, it will be free. Subrogation, which transfers the mortgage from one bank to another, will have no cost and can be freely made.
So what will be the consequences of the new law?
- A mandatory training program for bankers in charge of mortgages (initially 50 hours and then 15 hours a year).
- Certainly an increase in interest rates of real estate loans to offset the additional financial and human burdens of banks.
- A restriction of the credit (refusal or decrease of the percentage granted) following further checks and controls on the solvency of the clients.
- More work for notaries for the same price! And for the bankers but maybe not for the same price …
- Borrowers informed and aware of the risks associated with their credit.
- Borrowers who will not hesitate to change banks if the terms of mortgage credit are more interesting in another bank.
- In the end, a decrease in seizure procedures.
- And collateral effect due to the new procedure and the new workload for bankers and notaries, a decline in the number of mortgages in the short term in the days that will follow its implementation.
We offer you the PDF of the new law (71 pages):
All about the New Law on Mortgages in Spain, contact us for your copy. email@example.com
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