Mortgages with a floor but no ceilingConveyancing Thu, 28 Mar 2013
It should be a time for rejoicing for anyone with a mortgage. With interest rates so low, provided you are still in employment, you should at least be enjoying the lowest level of mortgage repayments you could hope for. However, not all home owners with a mortgage are actually feeling the benefit of the low interest rates. Not if you are a property purchaser who signed themselves into a mortgage with a floor clause or ‘cláusulas suelo’.
A floor clause is a minimum rate of interest that you pay irrespective of the level that the Euribor (the rate on which mortgage rates are based) reaches. This minimum percentage to pay is usually set at between 2.5% and 4.0%. Those without a floor clause attached to their mortgage would expect to pay around Euribor (0.5%) plus 1%, a total of 1.5%. A big difference for those affected.
Floor clauses are usually also offered with a variable interest rate mortgage which means that the bank has two means of calculating your interest. For example if your floor clause rate is below that of the general interest rate the bank will use the general rate - whichever is highest.
A floor clause is usually accompanied by a cap or ‘ceiling’ which prevents the interest rising too high. However, some of these caps are currently set at around Euribor + 15% - a level that it is highly unlikely we will experience in the current climate and presents little risk to the banks. In some cases mortgage holders have been given a floor but no ceiling. An omission which can be rectified in the courts.
All of these factors lead to many property owners paying out in interest much more than they should. What should you do if you consider your floor clause is unfair? People have tried taking their bank to court but the conditions will only be annulled if they lacked transparency. It is probably not an option for many people. You might try approaching your bank to have the clause removed. If they think you are considering moving your account elsewhere then they may be prepared to do a deal.
Perhaps what is most important is that both banks and their customers forge better relationships in future. Ones which promote clarity, transparency and develop greater respect between parties.