Spain’s new mortgage law, while still making its way through the final hurdles, is expected to be put into law in the first half of 2018. The main purpose of this new law is to make loan acquisition more transparent for home buyers and provide mores security for banks.
As we already mentioned in our previous article on Spain’s nw mortgage law, some of these changes are retroactive, meaning that they will affect all mortgages currently in force, while others will affect new loans that are signed after it goes into law.
How the Law Affects People in Spain Who Already Have Mortgages
People who are already paying a mortgage loan (currently in Spain the mortgage debt of families is around 532,000€ million) can benefit from the possibility of converting a variable mortgage into a fixed one. They can also get an extension on the term and amounts that can go without payment before the bank activates the so-called early termination clause.
They can also pay less to have the mortgage transferred from one entity to another. The maximum commission will be of 0.25% of the capital repaid early if it occurs in the first three years of the contract and 0% if it occurs later. In addition, notary and registry expenses are reduced by 90%.
In the case of early maturity, which is a clause whereby the bank can terminate the loan due to default and which results in a foreclosure procedure, the regulations establish new limits that depend on the duration of the mortgage. In the first half of the life of the loan, the bank can only apply this clause if the default exceeds 2% of the granted capital or nine monthly payments. In the second half, the default must exceed 4% of the capital or 12 monthly payments.
Anyone currently holding mortgages will also benefit from the new ‘blacklist’ of abusive clauses contained in the law.
How the Law Affects People Yet to Acquire a Mortgage Loan in Spain
To begin, and before signing the loan, you must go to the notary of your choice within seven days before signing to make sure that the contract that the bank has given you is in accordance with the law and does not include potentially abusive clauses. Ask all the questions you may have about the mortgage. This visit to the notary will be free and necessary to be able to sign the mortgage, and must be accompanied by a certificate signed by the client to make it clear that he understands and knows all the conditions and consequences.
In addition, the new regulation contemplates the creation of a mortgage type model, to which bank and client can agree (it is expected to be a simple prototype so that anyone can understand it), as well as the creation of an annex document detailing the potentially abusive clauses (such as the famous floor clauses), which will be something like a blacklist of those that are already being analyzed and made illegal by courts throughout Spain.
Banks will no longer be able to require clients to sign up to more products to qualify for the mortgage loan. Entities will be prohibited from forcing customers to contract products such as home or life insurance in exchange for granting them the mortgage. What they can continue to use are the ‘combined products’, which are those that offer the customer an improvement in mortgage conditions (for example, hiring home insurance to bring the differential lower by one tenth and another tenth if you also acquire life insurance).
New regulations are also demanding transparency when it comes to specifying in the contract what expenses each party pays, but it does not define which should be covered by the bank and which are on the client.
Consumers will also benefit from a reduction in fees for early amortization (partial or total). In the case of variable mortgages, the limit will be 0.5% of the capital repaid early in the first three years of the life of the loan and 0.25% up to the fifth year. Thereafter, you will not pay a penalty for the cancellation. For fixed mortgages, the percentage is somewhat higher: 4% in the first 10 years and 3% after that term.