15 key changes in the new mortage law in Spain22 Jul, 2019 Manolo Alarcon
With a delay of just over 3 years, Spain has already begun to apply the European Union regulations on mortgage loans, which introduces new procedures when obtaining a mortgage to buy a house. What does the new Spanish law on mortgages say? This is the question that many buyers of real estate in our country are asking themselves. In general, the new EU regulations introduce greater transparency and guarantee us better information about the mortgage that we sign, in order to avoid unpleasant surprises. These are the main 15 points of the law on mortgages in Spain, the so-called Real Estate Credit Law.
- What are the requirements must I meet to obtain a mortgage in Spain with the new law? Before starting any negotiation, the bank submits us to a solvency test, more demanding than the one used before. The banks will have established minimums to grant a mortgage, which will not be skipped in any case. These minimums will be calculated with a closer attention to equations such as “loan-value of the property” or “debt-income” of the client, and with a lesser relevance for other factors, such as guarantees. This test has no cost to the client.
- What is the information that I receive from bank when I apply for a mortgage? With the new law, the advertising brochure will no longer be enough to inform about the conditions of the mortgage. Now the bank will have to deliver two new documents, the European Standardized Information Sheet (ESIS) and the Standardized Warnings Sheet (SWS). This way, the EU ensures that consumers will have access to the necessary information throughout the member countries.
- What is the European Standardized Information Sheet (ESIS)? This document includes all the conditions of a mortgage (amount, duration, interest rate, currency, expenses, commissions…), so that the customer can compare it with those of other banks. To this, the bank must attach an interest rate amortization table, a simulation of interest variations linked to the evolution of interest rates, a payment amount and periodicity table and a simulation of fluctuations linked to the rates of currencies other than the euro.
- The Standardized Warnings Sheet (SWS) of a mortgage specifies the mortgage’s clauses (of advanced expiration, for example) and other relevant information, such as the distribution of loan expenses. Both documents, ESIS and SWS, are binding for the bank during the agreed term until the signing of the contract, which must be at least 10 days.
- How much time do I get to study the information about my mortgage? The client must receive all these documents at least 10 days before the signature of the mortgage. The legislators have been very strict on this: if the mortgage is signed within a period of less than 10 days, it will be declared null and void. Their objective is to provide clients with all the information and to allow clarification of all their questions before the signature of their mortgage.
- What new functions does the notary have under the new mortgage law? With the new law, the notary’s role is not limited to signing the deeds, as before, but is now assigned a new task: making sure that the client is perfectly aware of all the terms of the mortgage that he/she is going to sign. Thus, since the new law came into force, a buyer has to pay two visits to the notary. During the first, carried out within the 10 days prior to the signature of the mortgage, the notary: 1. verifies that the client has received the mandatory documentation from the bank; 2. submits the client to a test so as to make sure that he/she knows all the points of the mortgage; and 3. he/she clarifies all the client’s doubts. If the test is passed, the notary attests to this in a notarial deed, without which the mortgage cannot be signed. Only then can the second visit to the notary be organized, this time for the signature of the deed of the sale of the house and the mortgage loan. Important: the advisory service provided by the notary during the first visit has no cost for the client and, if the notary does not comply with his informative task, he is subject to sanctions.
- What documents do I have to present to the notary in order to sign a mortgage? The client must present the draft contract of the loan, the ESIS, the SWS and all the tables and documents attached to these. In addition, the bank sends all these documents to the notary electronically.
- How do I detect an abusive clause on my mortgage? With the new law, the notary must review the documentation and detect any clause of this type. Even so, it is important for us to know that the new mortgage law expressly prohibits the application of a minimum interest in the variable rate mortgage agreements, (the famous “floor clauses”). Obviously, the interest can never be negative, that is, if the euribor becomes negative, the accrued interest will be equal to zero, since the mortgage law excludes that a bank may be forced to pay for lending money. We must also be aware that, in the case of non-payment, the new mortgage law allows a foreclosure of a mortgage when the client owes 12 monthly payments or 3% of the granted capital, provided that we are in the first half of the term of the loan. During the second half of the life of the loan, the foreclosure will take place if the client stops paying 15 months or 7% of the loan.
- What are the expenses of the mortgage that I have to pay under the new law? With the old mortgage law, the client paid the costs of valuation, proceedings, notary, registration and tax on documented legal acts. Now, with the new law, the client pays only for the valuation (the rest is paid by the bank). According to different calculations, this means a saving for the clients of between 500 and 1,000 euros on average, depending on the amount of the loan.
- Can the bank force me to purchase an insurance policy to grant me the mortgage? In principle the new law prohibits linking the purchase of banking products to the granting of a mortgage, but it does allow the bank to offer bonuses on the loan for each product contracted by the client. In the case of home insurance, if the client presents an offer from another bank with better conditions, the bank will be obliged to match it or accept the insurance of the other entity.
- Will I have to pay an opening commission for my mortgage? Yes, the new mortgage law maintains opening fees, but eliminates all others. This will be the only one that the client will continue paying.
- Can I change the conditions of my mortgage? Yes. In fact, the new mortgage law has introduced a whole series of modifications to facilitate and reduce the cost of moving from one kind of mortgage to another or to negotiate a change of conditions. Although the law does not mention it expressly, its writers have clearly opted to favor the change of variable-rate mortgages for fixed-rate mortgages.
- And will I be able to cancel my mortgage easily? With the new law, early cancellation of a mortgage will be less expensive. For fixed-rate mortgages, the law establishes a limit on the cancellation fee of 2% of the advanced capital (not on the one still pending) during the first 10 years and 1.5% from the eleventh year. For variable-rate mortgages, the commission cannot exceed 0.25% of the advanced capital during the first three years, or 0.15% of the first five years.
- Does the new law permit the option of nonrecourse debt? In this case the answer is no. The new law does not provide for this possibility.
- Does the new law apply to me if I have already signed a mortgage? No. All mortgages prior to June 16th, 2019 are governed by the old regulations, so they cannot claim the expenses they paid when they formalized it in their day, nor request the refund of the tax on documented legal acts. Nevertheless, they can benefit from the limits imposed on commissions in cases of subrogation or novation of the loan (although not in the case of mortgage cancellations).
As you can see, the new regulations are very good news for the client. The law makes sure now that a real estate buyer gets all the information about his/her mortgage and can rely on the notary as a legal advisor, so as to be able to buy in total legal security. If you are planning to buy a property in Marbella, Estepona, Benahavis, San Pedro de Alcantara or any other place in our beautiful Costa del Sol, the Libehomes team will be delighted to help you find your ideal home.22nd Jul, 2019 by Manolo Alarcon