For those who will be taking out a mortgage in Spain during this year, there will be amendments made during this year that will affect you. The new Project of Law for Property Loans has been approved by the Board of Ministers, the next step will be for it to be approved by Congress and then processed in Parliament.
The amendments will ensure the following:
- Greater protection for consumers.
- Increase in transparency in this type of contract.
- Stop and prevent the claims that the banks have been receiving in the past few years.
- Add security to the national and European financial sector.
Within this reform there are two different groups: European measures and measures proposed by the Spanish Government
1.- EUROPEAN MEASURES:
These are solely applicable to new mortgages, approved after the new amendments.
Limits on commission for cancellation in advance:
- Variable Interest Mortgages: the limit will be 0.5% during the first 6 months and 0.25% until the fifth year. From thereon in, cancelling your mortgage in advance will have no charge.
- Fixed Rate Mortgages: the penalty will be 4% during the first 10 years, being reduced to 3% after the tenth year.
No more obligation to purchase products linked with your mortgage. This measure is general, and it expressly prohibits the client’s obligation to purchase products linked to the mortgage, and use this as a condition in the approval of the same. The lender will no longer be able to offer products to their clients, such as house insurance, life insurance, etc., to better the terms and conditions of the mortgage. The prevision is that the lender changes their way of negotiating the mortgage offering different estimates depending on whether the consumer contracts or not associated products. (Is this just me, or does that sound exactly the same as it is presently?).
Facilities to reconvert the mortgages into foreign currency to euro mortgages. The client, at any time in the duration of the mortgage loan that is in a foreign currency, may ask that it be reconverted to euros or to a currency in which he receives the greatest amount of income. This measure is without a doubt a consequence of the internationalisation of the economy.
Elimination of incentives for client acquisition. The bank employees’ salaries are conditioned by the recruitment of new clients and the sale of financial products. This could have lead to the sale of low quality mortgages.
2.- GOVERNMENT MEASURES:
Creation of a pre-contractual phase. The clients have a period of 7 days before the signature of their mortgage to visit a Notary of their choice to verify all the documents and make sure that there are no abusive clauses on the banks behalf. The Registrars will also be obligated to comply with this period, and those that don’t will be sanctioned.
Limit on the interests for late payment. Once the law is approved it may not be more than 9%.
Facilities to convert variable mortgages to fixed rate mortgages. This can be done either with your bank or another bank. Should you decided to change banks the cost will increase and the law here comes in, in full force in the following way: the commission for repayment will be 0.25% and will only be charged during the first three years of the mortgage that you wish to modify. On the other hand, the costs for Notary and Registry will be reduced by 90%.
Other national measures:
- Creation of a black list of abusive bank clauses.
- Creation of a standard mortgage model (comprehensive to all types of clients).
- Tightening of the advance payment measures; up until now, when a client had three outstanding mortgage quotas, the bank would foreclose on the mortgage. With the new law this will also change.