Spanish mortgage Act.
Some of you (or some of your clients if you are a legal advisor) might be planning to buy a property in Spain using a Spanish mortgage.
Many British buying in Spain use a UK mortgage bust most of them prefer to use a Spanish one to separate liabilities.
It is quite known that some Spanish mortgages in the past used to contain abusive clauses such as the floor clause we have talked about in previous articles (link to article).
Now is the time for some more peace of mind when buying in Spain with a mortgage.
Following 2014 EU Parliament Directive on Consumers Protection on Mortgage Credits, although with a relevant delay, Spain has finally incorporated the European rules to its internal law and a new Mortgages Act is in place, applying to mortgages signed from 16th of June 2019 onwards.
The Spanish government has also introduced new rules against some abusive clauses/practices that Spanish banks have been using for years against consumers’ rights.
We will give you a brief overview of the improvements on the conditions and costs of Spanish mortgages.
In 2015 the Spanish Supreme Court declared in a case brought to Court by the Spanish Consumers’ main Organisation (OCU), that charging all the mortgage costs such as Notary fees, Land Registry fees etc into the consumers or borrowers (normal practice until march 2019) was deemed abusive and therefore null and void. However, the said Court decision did not say in which percentage these costs should be split between the bank and the consumer. However, it is currently understood that costs should be split as follows:
- Costs to be paid by the bank
- Notary fees
- Land Registry fees
- Management and registration fees
- Stamp duty on legal documents (AJD) which goes from 0.5% up to 1.5% of the amount mortgaged, depending on the region the asset is located (this applying since November 2018).
- Costs to be paid by the consumer
- Valuation costs
- Cost to get a copy of the deed
Waving goodbye to the floor clauses.
The new Mortgage Act puts an end to the floor clauses on the floating-rate mortgages.
Limits on mortgage cancellation fees.
The new Mortgage Act reduces bank fees for mortgage cancellation, totally or in part.
With the new regulation, on floating-rate mortgages there is now a maximum percentage of cancellation fees within the first 5 years of the mortgage, being those cancelled after year 5 free of bank charges.
On fixed-rate mortgages, different rules apply.
Softer rules in case of non-payment of the mortgage.
Spanish banking rules used to allow banks to enforce the mortgage/early cancellation, claiming all the pending mortgage capital and interests when three mortgage monthly instalments were unpaid. The new regulation has introduced some limits on that, in favour of consumers.
Option to move from floating-rate to fixed-rate.
Banks now allow to change from floating-rate to fixed-rate free of charge if the transfer is made after year 3. If the transfer is done before the 3rd year, then a maximum fee of 0.15% may apply.
- Under the new Spanish Mortgage Act, the bank has the obligation to provide the consumer, ten days before signing the mortgage deed, with an informative sheet (FEIN and FiAE) containing all the information regarding the special clauses of the mortgage.
- This means that during these ten days before completion, you/the client or his/her representative duly appointed by a POA, shall attend the Notary office to be provided with all necessary details and information, free of charge, by a Spanish Notary Public and a Statement of Transparency deed, confirming having been informed and acknowledging the mortgage conditions, shall be signed.
- Therefore, it is now necessary to attend the Notary office in Spain twice: one day to sign the Statement of Transparency and another day for completion.
- For non-Spanish citizens buying in Spain, this makes completion less straightforward, and that is why we would recommend even more than before, appointing a Spanish lawyer to act on your/your client’s behalf.
Other articles about Spanish mortgages: click here