On Monday 17th June 2019, a new Mortgage Act (Law 5/2019 of 15th of March) came into force in Spain.
1) To which mortgage loans is the law applicable?
To any mortgage loan granted after 16th of June 2019 applied for by a physical person for the purchase of a residential property. It also can be applicable to Deeds signed after the said date that modify the terms of a former Deed of Mortgage.
2) Who is finally paying the costs related to the mortgage?
The bank has to pay the Stamp Duty (since 10.11.2018) and now also Notary’s fees, Land Registry fees and Law Agent fees known as “gestoria”.
The purchaser / borrower has to pay the fees for the valuation of the property and the copies of the Notarial Deed of Mortgage.
3) What happens with the floor clause?
The new legislation strictly prohibits the insertion in the Deed of Mortgage of a clause with a minimum interest rate thus the floor clause has been banned.
4) Are there any changes on the commissions for repayment before maturity?
Yes, these have been reduced.
For mortgages at a variable interest rate the banks can charge a 0,15% commission on the amount to be repaid during the first five years of the loan which could go up to 0,25% on the amount repaid in the first three years of the loan, if so agreed. After that term no commission can be charged.
For mortgages at a fixed rated the banks can charge 2% on the amount to be repaid during the first 10 years and 1,5% on the amount to repaid during the rest of the terms .
5) What happens if I cannot pay the mortgage loan?
You will have a longer term to avoid the repossession of the property by the bank.
The procedures to repossess a property can only be initiated by the bank in the following cases:
- During the first half of the loan if the borrower has not paid 12 monthly installments or owes more than 3% of the capital of the loan.
- During the second half of the loan if the borrower has not paid 15 monthly installments or owes more than 7% of the capital of the loan.
6) How much interest would I have to pay if payment of the installments is not made on the due dates?
The new legislations limits the rate of interest for delay in payment to a maximum of 3 points above the normal interest rate applied to the mortgage
7) Can I change my mortgage loan from a variable rate to a fixed one?
Yes, the new law legislation will make it cheaper to convert a variable rate mortgage into a fixed rate the maximum charge in this case will be 0.15% on the capital and will only be applicable if the change happens within the first three years of the term of the mortgage
8) Do I have to subscribe insurance policies and other products with the bank that is granting the mortgage?
No, in principle the banks cannot longer force the client to contract other products to obtain the mortgage (home insurance, life covers, credit cards etc.) However they are allowed to offer a lower interest rate in return for clients contracting various services of the bank. They can request insurance policies but the borrower can subscribe with any company.
9) Will I have more information about the mortgage loan and possible abusive mortgage clauses?
In principle the reason for the new legislation is to increase the protection of the consumer by providing a greater level of information of the loan.
The bank has to provide the future client with the form called FEIN (Ficha Europea de Informacion Normalizada, or European Standardized Information Sheet). This standardized document is designed to give the borrower an overview of the terms and conditions of the mortgage loan. Also the bank has to provide the client with the FAE (Ficha de Advertencias Estandarizadas), where the most relevant clauses and elements will be generically explained, and also with a copy of the loan contract. If the mortgage is at a variable rate, the client will also receive a separate document outlining the effect on installments in various scenarios.
The bank has to remit these documents to the Notary’s office at least 10 days before the date of the signing of the Deed of Mortgage and the borrower will have to visit the Notary who will give free advice on the clauses and mortgage terms. The borrower will have to pass a test to confirm to have understood the terms and Notary will have to prepare a Deed confirming that the documents have been received and understood by the borrower. Only after this on a second visit the Deed of Mortgage can be signed by the client.
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution.
Rafael Berdaguer
Lawyer within the firm
Rafael Berdaguer Abogados based in Marbella, Spain.
www.berdaguerabogados.com
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