How Spain’s new mortgage law in June 2019 affects property sales for exparts

The new mortgage law in Spain was passed on 17th June 2019.

On Monday 17th June 2019, a new mortgage law allows non-residents who apply for a mortgage in Spain to change it from the euro to their local currency at any time. Specifically, Article 20 of the Real Estate Credit Act (Ley de Crédito Inmobiliario) allows any future mortgages taken out by expats from countries outside the Euro zone, such as the USA and UK, to change their mortgage into another currency in two specific cases:

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Case 1

If the currency in which the borrower receives most of their income or has the most assets with which to repay the loan is not the euro, as indicated at the time of the most recent credit assessment for the loan contract.

Mortgage clients with mortgages denominated in currencies other than the Euro have the right to convert their mortgage to Euros at any time. Additionally, banks must periodically inform their clients if their total debt increases due to currency fluctuations.

Case 2

If the above requirements are not honoured by the bank the contract will be considered void. Interestingly, the borrower could demand that their mortgage is converted to Euros retroactively and that all over-payments in the other currency be deducted from the pending capital of the mortgage.

Lenders can no longer force borrowers to purchase other products!

Vision

Spanish banks traditionally specialized in cross-selling different products. In the past, they required borrowers to purchase life insurance and home insurance before issuing a mortgage. Now, they must allow borrowers to accept insurance from external providers. Moreover, they cannot threaten to raise the interest rate if the insurance is issued by a third party.

We seek to become a national force for sustainable homeownership, reaching out to underserved clients and giving them the confidence they all search for.

Additional mortgage fees charged by the Banks

  • Fees paid to a gestor. Gestor is the Bank administrator and generally amount to a few hundred euros.

  • Fees paid to the Norway.

  • Fees paid to the Land Registry. Fees paid to the Notary and Land Registry usually amount to around 10percent of the property value.

  • The AJD (Actos Juridicos Documentados), or mortgage tax. Depending upon the region in which you reside, the AJD can amount to up to 2.5 percent of the property value.

  • Property valuation fee. This typically amounts to 0.1 percent of the property value.

  • Mortgage origination fee or Banks arrangement fee. On average, this amounts to 1.5 percent of the property value.

‘Floor clauses’ will be removed

Prior to Spain’s new mortgage laws, lenders put a floor on variable rate mortgages. Meaning if interest rates went up, they made more money but they were protected if interest rates fell. Now, the floor is 0 percent of the mortgage rate (not EURIBOR).

This provides additional protection for borrowers since mortgage interest rates are always higher than EURIBOR. This is particularly relevant in the current environment, where EURIBOR is currently in negative territory.

It will be cheaper for borrowers to repay their mortgages mid-term

Early repayment fees are cheaper and can only be reassessed if the bank will incur a loss from early payment. Repayment fees have now reduced from 0.5 percent within five years on variable rate mortgages to 0.25 percent within three years and 0.15 percent if repayment occurs within four to five years of inception. There will be no fee if repayment occurs after five years.

Additionally, banks will no longer be able to delay the early repayment of a mortgage. Spain’s new mortgage laws stipulate that the maximum notification time a bank can demand is one month. After notification of intent to repay the mortgage, banks have three working days to assess the demand and provide the relevant information. Spain’s new mortgage laws stipulate that banks can charge no more than 0.15 percent. These can only be reassessed in the first three years of the mortgage. After that, the fee is 0 percent.

More protection for consumers

The new laws contain a number of other conditions to protect consumers. The primary ones are:

  • The standard mortgage offer document, called a FIPER, will be replaced with a FEIN. Much more detailed and transparent than the FIPER, it will allow borrowers to shop around for their mortages.
  • A 10 day «cooling off» period. Borrowers must wait 10 days between receiving a FEIN and signing the loan documents.
  • Borrowers must take a small test at the notary to demonstrate they understand how the mortgage works.
  • The BanK of Spain will create a new agency to process-related complaints and claims.
  • All commissions granted to lenders for issuing mortgages must be fully transparent.