Changes to Spanish mortgages

The new Spanish mortgage law

Conveyancing Wednesday, August 7, 2013
Changes to Spanish mortgages

Many people buying a Spanish property have relied on obtaining a mortgage in Spain to help them. At one time, this was incredibly easy to do leading to some of the difficulties people now find themselves in.  Negative equity, unaffordable payments that are not matched by rental income and unemployment have all led to a catalogue of sad cases of desperation reaching the press.  

On the other hand, some people are still wanting to buy properties in Spain and would like to take out a Spanish mortgage to do so. However, they have found themselves frustrated by what seems to have been a reversal of the previous position. Mortgages in Spain were becoming increasingly difficult to obtain. In this article we look at how the new Spanish mortgage law will affect those with existing mortgages and those aspiring to one.

Clemency for mortgage holders

The practices of the boom years meant that mortgages were often too high for those requesting them and the rules around them were often unfair and misunderstood by mortgage holders.

In the rush to buy houses in Spain, purchasers were perhaps given few details about how the mortgage would work in practice and wrongly assumed that they operated in a similar way to how they would in their home country. This lack of information has enabled some people to appeal against ‘abusive clauses’ in their mortgage agreements. The new mortgage law has enabled those struggling to pay their mortgage to have this taken into consideration before eviction proceedings take place.

There are other concessions too. The new Spanish mortgage law means that there will be a two-year moratorium on repossession in Spain.   It won’t apply to everyone. There will be a filtering of cases so that only those who are particularly at risk due to their social and economic circumstances will be covered. Large families and those with young children will be given special consideration along with those on low incomes or where the debtor is unemployed and no longer entitled to unemployment benefit.

The new law will mean that debtors can hand over the keys and be free of any outstanding debt. Previously, even if the house was returned to the bank, the mortgage holder could still be held responsible for outstanding debts and find it impossible to move forward.

Before it gets to this point, more time is being allowed for debtors to put matters right. Whereas previously proceedings could begin as early as one month after non-payment, this has been extended to three. In practice, few banks did act so hastily, at least now they aren’t officially allowed to do so.

Interest rates on defaults have hit debtors hard. Those paying late or omitting a payment could be charged as much as 30% interest from the 5th day of non-payment. The new law limits this percentage to three times the Central Bank’s reference (currently at 4%).

Taking out a mortgage

It is important that when applying for a mortgage that you are realistic about how much you can afford to pay. In the excitement of finding a property, potential purchasers can be tempted to stretch their budgets too far and struggle later. It was important that mortgages were more realistically aligned to the applicants income as well as being set in a contract they could understand.   

According to the new law, mortgages must be accompanied by a handwritten note signed by the client saying that he/ she has been informed about the terms and conditions of the mortgage. This information wasn’t always conveyed before, leaving the mortgage applicant vulnerable to all kinds of unreasonable conditions.

Banks were often the ones to value the property with the result that they were only interested in ensuring that the value of the building covered their own investment and not yours. Now, applicants can have their own valuation carried out in addition to that of the bank’s.

Now, a mortgage cannot be taken out for longer than 30 years and must be paid by retirement age. Hopefully the new mortgage law will help banks and their clients achieve the right balance between appropriate caution and enabling people to buy their own home.

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