The new Spanish mortgage law explained
In mid-June a new law on loans for the purchase of property entered into force in Spain. What is changing?
The new rules for obtaining a mortgage lead to a lot of questions and uncertainty among people who are planning to buy a house and want to go to the bank to take out a mortgage.
The changes that have now been approved are a result of European regulations. In 2014, it was decided in Brussels that there should be general rules for buying a house. The government of Rajoy (PP) did not agree and Spain failed to amend the mortgage law, until the EU threatened with a fine of 80 million euros. The switch from PP to PSOE in the government also helped to amend the law, which finally took shape in June 2019.
Incidentally, it was clear to insiders for a long time that the existing legislation in the area of mortgages had to change. Decades of problems, with house evictions, abuse by banks, protests and lawsuits preceded the adjustments and the private individual complained that the interests of the bank always seemed to prevail in their own interest.
The new Spanish government believes that the new law, based on European directives, offers more stability and security. It deals with aspects that have not yet been recorded. However, the reactions to the law are not entirely enthusiastic. The notaries say they are happy with it; the banks are nuanced in their assessment, while home buyers had expected more from the change in the law.
What has changed?
Mandatory intervention of the notary
One of the most important changes is the role of the Spanish notary. The notaries often received criticism from consumer associations that they did not give enough advice and only collected money for the preparation of documents.
Mandatory explanation by notary well before the loan is taken out
From now on, if a home buyer goes to the bank to take out a mortgage, the bank is also obliged to immediately engage a notary. The customer must arrange a meeting between notary and bank at the latest 10 days before the signing of the transfer. In that meeting, the notary must explain exactly to the person taking out the loan which obligations they are taking on.
Negative advice by the notary possible
The notary can also advise not to do proceed if the notary thinks it is not wise. The bank must prepare a series of documents that are available during this interview so that the notary can assess all factors.
Criticism and understanding
Although the criticism on this point is that this provides a lot of extra work for notaries and can seriously delay the purchase of a house, almost everyone agrees that buying a house and taking out a mortgage are steps that need to be explained.
Doubts about the shelf life
A spokesman for the Spanish consumer association for banks and insurance (Adicae), however, thinks there is a big risk that the notary will quickly fall back into old habits. Filling in the form will become automatic and the customer can fruitlessly hope for good advice just like in the past.
Stricter solvency check
A second important change is the stricter control that the banks must exercise on the solvency of the future borrower. The banks must carry out an extensive study into the income, savings and expenses of the mortgagee, both the current and the expected future figures. The latter is particularly important if the loan extends beyond the date that someone retires and his / her income is reduced.
No more sales commission for bank employees
Banks are also no longer allowed to pay their employees a commission to get a mortgage. Especially in the years before the economic crisis it often happened that bank employees arranged mortgages too easily. This was encouraged by form of extra reward. Whether the mortgage was also advisable was therefore viewed less accurately. Closer control means more work but also fewer court cases, according to a spokesperson for the Association of Spanish Banks (Asociación Española de Banca).
Costs for taking out a mortgage from the bank
According to the European and now also Spanish rules, almost all costs for taking out a mortgage are now borne by the bank. The customer only pays the valuation and his own copy of the deed of purchase. All other costs and therefore also the AJD (tax on notarial documents) are for the account of the bank. There is a fear that the banks will therefore increase their rates for taking out a mortgage in order to be able to pay those costs.
Cost increase not likely
The Mortgage Association (AHE) thinks that due to the heavy competition between banks, the cost increase will not be applied quickly. The banks must provide more clarity about the interest rate of a mortgage and how the amount to be paid comes about. The customer is usually wise enough to choose the bank that uses the real costs.
Early repayment cheaper and less quick on a bank attachment
The new legislation makes it cheaper to repay early. In addition, the interest rate on monthly payments that are paid too late falls. The period that the bank must wait before it can seize a property will also be longer. Only if someone has failed to pay three percent of the borrowed capital or twelve months to pay in the first half of the term of the mortgage, can the bank seize. In the second half, that is 7 percent of the outstanding amount or fifteen months.
No more minimum percentages and tied sales
The new legislation also means the end of the so-called "clause suelo", a practice widely used by the banks in Spain which means that a minimum interest rate is agreed upon when taking out a mortgage. The bank covered itself with this. If the percentages on the world market fell below the agreed percentage, the bank did not have to reduce it and so the bank continued to earn well, while the customer was disadvantaged. These unfair clauses have led to thousands of lawsuits against banks in recent decades. Also the so-called "ventas cruzadas", couple sales,where the loan for the purchase of a house was also linked to the purchase of a washing machine or other item, are no longer allowed.
Collateral and other loopholes
The biggest criticism of the new law by associations such as Adicae (Spanish consumer association for banks and insurance) and the platform of people affected by mortgage problems, has to do with the mortgage collateral. Under the new regulations, this collateral is determined in consultation between the bank and the person taking out the loan. The bank is free to refuse the property on which the mortgage is taken out as collateral and therefore to continue to be able to demand payment of the debt, even if one has nothing but the home. Moreover, according to Adicae, it will not take the banks too long to find loopholes in the currently approved law and to use its own interpretation of the new rules. Adicae therefore wants to strictly monitor compliance with this law, which should be an improvement for the person taking out the loan.