Bill passed in Parliament

Yes, this is the (long-awaited) news that changes to Spanish mortgage law, “La Ley Hipotecaria”, have been passed by Parliament and are to be enshrined in law in less than 30 days.

Modifications have been made to provide greater transparency upon formalising a mortgage loan, reduce the initial costs for the interested party and give the consumer greater protection throughout the duration of the loan.

As is often the way when legislation is changed and there are a lot of economic variables in play, sifting through the jargon can be quite taxing and time-consuming… especially since not much has been written about these Spanish mortgage law alterations in English.

With that in mind, I’ve tried to summarise the three key improvements below:

1. No more opening costs / commissions

The first issue that is on a list of “abusive clauses” – or “cláusulas abusivas” – as far as lawmakers are concerned is the ability of the lending party to impose a commission simply for drawing up a loan agreement.

Banks would charge between 0% and 3% of the total loan amount for fixed interest mortgages, while variable rate mortgages would be subject to an additional charge of up to one per cent1. Because they could.

3 Reasons Why Spanish Mortgage Law Has Got Better For Homebuyers. No more opening costs / commissions

2. Fewer related costs for the consumer

Property buying costs are high enough for the average purchaser as it is. In order to help the consumer financially, there are other related costs that will now be assumed by the banks which were traditionally the client’s burden.

These include stamp duty – or “Impuesto de Actos Jurídicos Documentados” (IAJD) in Spanish – and notary fees, as well as registration, tax advisory and credit check fees, where necessary.

The IAJD is of particular interest to the homebuyer seeking credit, since the amount payable varies depending on where the property is located.

In some regions, the amount due could be 0.4% of the sum of mortgage liabilities, whereas this rises to 1.5% in Autonomous Communities with a higher IAJD coefficient2.

3. Abolition of mortgage “floor clause”

The so-called “floor clause” – or “cláusula suelo” – was a condition put in place by banking entities to ensure a minimum interest rate was being paid in the event of a significant dip in the Euribor, which might take it towards or below 0%.

The Euribor – the reference used by Eurozone banks to establish interest rates – has indeed been consistently below 2% since 2010 and is now even in negative percentage points3.

However, some banks have been applying a “floor rate” of 3%-4% to maintain returns on the loan capital, thereby preventing the consumer from benefitting from extremely low interest rates.

Thankfully, this is now adjudged to be abusive practice and Spanish mortgage law will no longer accommodate the practice.

3 Reasons Why Spanish Mortgage Law Has Got Better For Homebuyers. Abolition of mortgage “floor clause”

Other changes to Spanish Mortgage Law

As well as these three reasons why Spanish mortgage law has got better for homebuyers, other important perks are coming into force.

There will be greater leniency with evictions due to non-payment (especially in the first half of the mortgage’s life), the consumer will no longer be obliged to sign up for other banking products when formalising the loan, commuting from a variable to fixed rate will be made easier and cheaper, and the client will be able to convert the currency of the mortgage to that of his/her income.

Overall, these new measures are aimed at making the process of obtaining a mortgage in Spain much simpler and cheaper, whilst the loans themselves will offer greater protection and peace of mind.

If you are researching mortgages in Spain, did you find this article helpful? Or, if you have already taken out a mortgage here, what was your experience like? Did you find some of the conditions "abusive"? In either case, let me know by leaving me a message!


Sources:

1 http://www.i-hipotecas.es/hipotecas-nuevas/gastos/comision-apertura.html

2 http://www.foroconsultores.com/en/2018/11/12/impuesto-de-ajd-en-una-hipoteca/

3 https://www.euribor-rates.eu/euribor-rate-12-months.asp

http://observatorioinmobiliario.es/congreso-aprueba-la-ley-hipotecaria