New Mortgage Act in Spain

https://www.costaluzlawyers.es/2019/02/25/the-new-mortgage-act-in-spain/

1. When does the new Mortgage Act come into force?

The coming into force will not be before   May 2019

2. How is finally regulated the distribution (bank- consumer) of mortgage expenses?

• The client will just pay the property valuation (between 300 and 600 euros) Valuators can be freely chosen by the client. They can be individual persons.

• Rest of the expenses will be paid by the bank (mortgage management, Stamp Duty Tax (IAJD), Notary and registration fees). 

Some entities have already begun to announce that they will also assume this expense in the new contracts.

Saving on Stamp Duty is the most important one: depends on each autonomous community and can vary between 1,500 euros to 6,000 euros depending on the loan and the community in which the house is. 

The rest of the expenses could involve a cost for the entity between 1,000 and 3,000 euros.

3. How does it affect commissions?

• Commissions for early amortization are reduced to 2% during the first decade and to 1.5% later in fixed mortgages. In the variables, the rate will be 0.25% in the first three years and 0.15% in the first five years. 

• Opening commission is not limited, but it will be accrued only once and it will include all the costs that are to be passed on to the client:  study, processing and granting of the loan or other similar expenses.

 At this point you can find large differences in entities, from those who charge nothing to some that charge 2%. 

• Commissions for novation or subrogation: With the new regulation the client, also those who have loans prior to the Law can subrogate without cost and freely their mortgage. 

• In the case of the novation if the mortgage debtor is not satisfied with the conditions that he signed on his mortgage, he can change them without the entity charging him any commission for the novation.

4 Can banks impose linked products?

• Banks cannot force the hiring of products such as insurance, pension plans or cards that condition the price or the granting of the loan, unless they adhere to the criteria of the Bank of Spain. 

• They can only be sold separately from the mortgage 

• Alternative insurance policies will be allowed. "In no case" the acceptance by the bank of an alternative policy other than the one proposed by them may lead to worsening of the loan conditions.

• Banks may make bonuses for the products that are contracted, as it is done nowadays.

• "In no case" the acceptance by the bank of an alternative policy other than the one proposed by them may lead to worsening of the loan conditions.

5. How are default interests regulated?

• The penalty for delayed payment of the mortgage may not exceed the loan interest by more than three points.

• Interest for delay can only be accrued on the principal due and pending payment.

6. What about repossessions? 

• Old regulation, allowed  banks to start repossessions  if the debtor  stopped paying during three months  in the first half of the debt term or 12 months in the second half of the loan period.

• New Law rises the months of non-payment to execute the debt to 12 months or 3% of the remaining debt in the first half of the debt term or 15 months or 7% in the second half of the loan period.

• Together with these requisites:  the regulation establishes one more requirement: that the lender must have  requested the payment to the borrower, granting him a period of at least one month for compliance and warning him that, if not attended, he will claim the total repayment owed on the loan .

This new feature will have   retroactive effects: that is, it will be valid for those loans prior to the entry into force that contain the early termination clause. It will be the debtor who decides to avail himself of the new guidelines or those that include his contract.

7. What about Floor Clauses?

• The New Law prohibits the Floor clauses, so in the operations with variable interest rate cannot be set a limit on the low interest rate. 

• Remunerative interest paid by the client cannot be negative, since it would be a detriment to the bank (the lender would have to pay interest to the borrower).

8. Can you change from a variable mortgage to a fixed one?

The regulation also favors subrogation and novation of loans when they are intended to convert the variable interest rate into a fixed one. 

In the event that this conversion occurs, the limit commission is 0.15% of early reimbursed capital during the first 3 years of the contract. The penalty disappears after the fourth year.

9. What information should the client receive before signing the mortgage?

The client will have his contract at least ten days before the signing of it and, in addition, the notary must solve all their doubts, check that there are no abusive clauses and ratify that the owner understands what he is hiring.

  The goal is to have enough time to calmly read the contract, solve any doubts that may arise and dialogue with the entity if there is any discrepancy. 

10. What will be the role of the Notary?

 With the new law, the owner will have to go to the notary a minimum of two times. 

• The first will be without the entity to be able to ask any questions that arise about the intricacies of your contract.

• The second will be with the entity for the signing of the mortgage contract.

In addition, the notary will ensure that the client knows perfectly the ins and outs of his contract. The contracting party will have to answer a questionnaire to prove it.

According to article 15, "in the presence of the notary, the borrower will respond to a test that will aim to specify the documentation delivered and the information provided."

11. Do banks have new obligations?

• Yes, there are more in-depth obligations regarding the evaluation of the solvency of the future mortgage debtor: consulting the credit history of the client at the Bank of Spain. 

• Incentives for workers to sell more credits are limited.

• If a Mortgage is granted, banks are allowed to transfer debtor´s data to private credit information platforms. The cost of this 'investigation' must be borne by the bank.

12. Will the price of the credits go up?

• It will depend on the European Central Bank and the credit rates of it

• What is clear is that with the new Mortgage Law, customers can save money when it comes to formalizing their mortgage, since they only have to pay the valuation. Some banks are also paying for this so their offer is more attractive.

13. How will property valuations be?

They will be carried out by an appraisal company, appraisal service of a credit institution and / or an approved professional, independent of the lender or the real estate credit intermediary, using reliable and internationally recognized appraisal rules.

14. What finally happens with green mortgages?

Although the Senate had included in the text the regulation of the green credit figure, this has not finally been approved.  The measure was intended to encourage and support energy efficiency and the use of renewable energy sources in buildings, and sought to channel private capital to finance investment projects in energy efficiency, water saving, and use and storage of renewable energy.

15. What about multi-currency mortgages?

The consumer has a right to convert the loan denominated in foreign currency into the currency in which the borrower receives his income or that of the member state in he who resides. As a general rule, the euro will be used.

Specifically, the text establishes that the exchange rate used in the conversion will be the exchange rate in effect on the date on which the conversion is requested, unless contractually established otherwise. In addition, the bank will be obliged to inform the customer of the balance pending payment and the right to convert the currency when the amount differs by more than 20% compared to the one that would pay with the euro.