After a long wait, a new Mortgage Law will come into force in Spain next spring. There are several important changes regarding some controversial aspects such as formalisation expenses, “floor clauses”, repayment fees, etc. These is an outline of the Mortgage Act that will soon affect property buyers in Spain.
Does the new law affect every mortgage agreement?
This new law will apply only to new mortgage agreements, signed after its publication on B.O.E. (Official State Gazette) around May 2019. It will not apply to mortgage loans signed before that date, except in the case of novated or subrogated mortgages.
Which are the main benefits fo property buyers?
- Less costs for the buyer
The bank assumes most of the mortgage’s formalisation expenses: notary fees, Tax on Documented Juridical Acts (I.A.J.D.), Register expenses and administration fees. Since the buyers only have to pay for the property’s appraisal and for any copies of the deed they may request, there is an important reduction on these costs for them.
- Lower early repayment fees (down to 50%)
Depending on the loan’s type and their moment of life, property owners would pay fewer fees if they want to pay off their mortgage in advance:
- Fixed interest: 1.5% if cancelled in the first 3 years and 2% if cancelled in the first 5 years
- Variable interest: 0.25% until the 3rd year on and 0.15% until the 5th year on
- More flexibility
In the case of novation and subrogation, mortgagees may switch banks to get better conditions, without having to pay any penalty fee.
- Buyers get more time to carefully check the terms of the loan
Banks must provide a draft of the contract 10 days before the date scheduled for the signing. Thus, the property buyer will be able to go through it with a notary, to make sure that they fully understand the contract and to ask the bank for any necessary clarification.
Prohibitions and limits for banks
- “Mortgage Floor clauses” are forbidden
- Forcing clients to purchase other products from the same bank (insurance, credit cards, etc) linked to mortgages is forbidden. Banks are, however, allowed to offer these products as a complement, with better conditions for the clients purchasing them
-Loan’s opening fee is to be settled just once, including all necessary expenses
-Banks must wait a longer period before they are allowed to start a foreclosure process:
- Mortgages on the 1st half of their life: 12 unpaid instalments or 3% of the total
- Mortgages on the 2nd half of their life: 15 unpaid instalments or 7% of the total
This is just a sum up of the most relevant clauses to consider when applying for a mortgage in Spain. If you wish to consult any specific point or you need professional advice about the terms of the new Mortgage Law, contact us at info@lssolicitors.es and we will be glad to assist you.
