Clarify your mortgage clauses

Better information about your mortgage

Conveyancing Monday, August 7, 2017

During the very busy years of buying in Spain, mortgages were easy to get hold of. Banks carried out only the most rudimentary of checks and purchasers often knew little about the mortgage they’d taken out. In this article we explain that more protection is to come.   

In the rush to seal the deal banks and other lenders were frequently too hasty in glossing over the small print in their mortgage contracts. Those signing were often not informed of what they were agreeing to for the next 15 to 20 years or more of their lives. Borrowers were ill-equipped to ask the right questions and in their enthusiasm to buy, failed to read the paper they were signing.   

Banks took advantage of the situation. They recognised that eager purchasers, particularly of different nationalities, were unlikely to quibble and contracts were prone to contain what has become known as ‘abusive clauses’.

Spain has taken some measures of its own to ensure that banks clean up their act. A Spanish mortgage law took account of the abusive nature of the way in which mortgages were sold. Banks are now required to take greater care in ensuring that their customer understands the terms and conditions of the mortgage and clients must sign to say that they have been informed about the terms and conditions.

However, the EU is also anxious to see that banks across the Eurozone aren’t behaving badly and Spain is dragging its feet a little in this respect.  

More checks to come

The EU has denounced Spain for not implementing the Ficha Europea de Información Normalizada (FEIN) or the European Standardised Information Sheet.

It isn’t only Spain that’s had its knuckles rapped. Croatia, Cyprus and Portugal have also lapsed in putting into action what the EU has said should have been implemented since March 2016. The chief message behind the EU’s ruling is that those taking out a mortgage should understand the conditions and the risks of doing so. This all sounds like simple common sense and good practice. Customers should be able to compare mortgage offers and choose those that best meet their needs.

Banks should also provide sound checks on the solvency and ability of those applying to pay. Sometimes people will be over ambitious with their borrowing requests and need an external, realistic check to reign them in a little. The EU wants to see a mortgage credit market across the zone which provides high levels of consumer protection.

Overall the legislation expects that customers will be better informed about:

  • Staff’s credential to process the mortgage
  • Requirements around early repayment
  • Property valuation
  • What will happen if a mortgage payment is missed

It will also include a greater obligation to assess the solvency of those applying.

Spain has wriggled a little in its duty to put these requirements into operation. But the EU will not let it pass and will pursue the Spanish government until it does comply.

Mortgages can be a good option

What happened in the past should not deter anyone eligible from considering applying for a mortgage now. Banks are much more transparent with their conditions and small print and also apply a more searching check themselves for who they will and will not lend to.

Obtaining a mortgage can mean the difference between buying the property of your dreams or making do. They can also be used to help refurbish a property and add significant value to it. Either way, the possibility should not be discounted and if you are thinking about applying for one, just be clear:

  • How much you need to borrow – taking into account any expenses involved in applying for the mortgage
  • What interest you will have to pay in the first year
  • How often the rate will change
  • About whether you are able to choose the company who will insure the property
  • About whether you must take out life insurance with the bank
  • About whether there will be late payment fees and if so, what they are

Do not be afraid to ask questions. Most banks are very well-equipped with foreign language speakers and you should not rush into accepting one offer but compare quotes from different mortgage providers.  

After you have accepted the firm offer, the mortgage provider will send the documentation to the notary’s in order to prepare the Mortgage Deed. The signing of the Mortgage Deed and the Title Deed will take place at the same time. Following this the Notary will send an electronic version of the Title Deed and the Mortgage Deed to the Land Registry in Spain.

With the additional checks required by the EU, Spain’s own greater vigilance and clients who are more aware, we hope that lack of transparency is a thing of the past when it comes to mortgages. 

Do you have any questions?

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