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Mortgage Law

The new Mortgage Law (2019)

The new Mortgage Law enters into force on the June 17th 2019

One of the most relevant innovations of the new Mortgage Law is that one of the obligations of the Banks is to ensure that the client is solvent.
“The lender must consult the client´s credit history by going to the Bank of Spain’s Central Risk Information Office, as well as to one of the private credit information institutions under the terms and with the requirements and guarantees provided by the personal data protection legislation. If the lender grants the loan, it may communicate the following data to the private credit information offices: original amount, starting date, maturity date, amounts pending of payment, type of loan, existing guarantees and the value they reach, as well as any other data established by the holder of the Ministry of Economy and Business”

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Below, we present the 15 most relevant innovations of the Mortgage Law:

  1. This law comes into force 3 months after its publication: Not before May 2019
  2. The Bank may only charge for those services which it can prove that those have being actually provided
  3. Any opening fee, to be accrued in a single payment, must include processing, study or concession fees
  4. Since the Law came into force, mortgages are taxed with regard to the Tax on Documented Legal Acts at 0%
  5. The debtors of the debt with mortgage guarantee will only have to pay appraisal costs. The Valuation Company must be recognized by the Bank of Spain. From now on, the client and the financial entity will be able to choose between a Valuation Company and an approved professional.
  6. Notary, Registry and Agency fees are paid by the Banks.
  7. The so-called “ground clauses” are forbidden.
  8. The foreclosure can only be initiated (1) in the first half of the initially agreed period, after the non-payment of 12 quotas or, if the amount of the unpaid quotas is 3% of the initial mortgage debt, and in the second half, after the non-payment of 15 quotas or 7% of the mortgages debt.
  9. This rule on early termination will also affect attachment procedures currently suspended and pending decisions of the Court of Justice of the European Union (CJEU).
  10. Commissions: For variable interest mortgages, there is a maximum limit of 0.25% during the first 3 years of the mortgage. This amount is reduced to 0.15% from the fourth year onwards. For fixed interest mortgages, a maximum limit of 2% is set for the first 10 years and 1.5% from those 10 years onwards.
  11. It is prohibited to associate the mortgage with other products sold by the Banks: retirement plans, life and home insurance, credit cards… It is allowed that the Bank requires an insurance that provides coverage to meet the obligations of the mortgage.
  12. The mortgagor can change the bank or the conditions of his mortgage, whenever he wants and without incurring in any additional costs. Changing from a variable mortgage to a fixed one can never imply a commission higher than 0.15%.
  13.  A “cooling off” period of 10 days is established. During those 10 days, the mortgagor can reflect on whether he really wants to sign the mortgage under the conditions offered. In addition, the Bank will be obliged to provide information on mortgages from other banks.
  14. The maximum default interest for new mortgages is set at 3% and 2% for old mortgages.
  15. The Notary shall ensure and attest that the mortgagor knows what he is signing.

The Economy and Business Commission of the Congress has approved this week the new Real Estate Credit Law. This Law will regulate the granting of mortgages. This text will be forwarded to the Senate before Christmas for urgent processing.

With it, it is expected to reduce conflicts with the banking system, which has been in a critical moment until now. See, for this purpose, the following tables on foreclosure initiated in Spain in the last 3 years (CGPJ Statistics)

Total propertiesTotal rural propertiesUrban Properties
HomesPlotsOthers
201751.9993.28327.1712.52419.021
201672.9413.73041.1293.73424.348
2015102.4775.29460.0324.29932.852
GeneralNew homeSecond hand housing
201727.1714.63222.539
201641.1295.40335.726
201560.0328.05651.976

In short, the aim is to achieve greater contractual transparency and confidence in this sector.
It is scheduled to come into force in March 2019.

Main guidelines set by the new standard:

1.- Expenses

The Banks will assume all the expenses of the formalization of the mortgages except the one corresponding to the valuation of the property.
Formalization costs include notary fees, agency fees, land registry fees and mortgage tax.

2.- Rural Savings Banks

The new law puts them on an equal footing with other credit institutions.
Consequently, from now on, the mortgages granted by the savings banks will also be taxed (with the corresponding tax being charged to them).

3.- Notarial advice

The client must have access to the draft mortgage, at least ten days before public deed.
The latter must receive (free) advice from the intervening notary, who will make sure that he understands all the clauses of the deed.

4.- Reduction in the commissions

• Of amortization:

For variable mortgages, the cancellation of debt will entail a commission of 0.25% on the amount amortized from the 3rd year or 0.15% from the 5th year.
Currently, these fees are 0.5% during the first 5 years and 0.25% from the 6th year onwards.
For fixed-rate mortgages, a maximum of 2% of the amount amortized during the first 10 years of the loan is established.
This maximum will be 1.5% if depreciation takes places from the 10th year onwards.

• Conversion:

The conversion of variable-rate mortgages to fixed-rate mortgages is made cheaper. To promote this change, the new law sets a maximum of 0.15%, no limit is established in the current regulations.

5.- Eviction

The new law prevents a bank form starting a foreclosure process, prior to eviction, until a client:

1. Fails to pay 12 quotas; or
2. The equivalent of 3% of the principal loan during the first half of the loan’s life

This Law will not affect the foreclosure processes already initiated.

6.- Subrogation

Moving a loan from one bank to another will no longer be tax exempt. The tax base will be remaining debt to be repaid plus interests.
The costs generated by the transfer will be apportioned between the two financial institutions. In doing so, the duration of the credit and the time at which the subrogation takes places shall be taken into account.
This measure is intended to encourage the granting of new mortgages.

7.- Accessory banking products

The bank is prohibited from linking the granting of loans to the purchase of one or more ancillary products (such as insurance policies)
However, the application of subsidies on the loan spread is allowed for each product contracted with the bank (a practice that is also very common in Spain)

8.- Exemptions

Energy efficient and/or renewable energy house will be eligible for the so-called “green” mortgage. These types of mortgages will be exempt from taxes.

9.- “Ground clauses”

It has finally been decided to ban them, despite the fact that these clauses are legal if they are well regulated.

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