FINANCING – the news about the new Spanish Mortgage Law

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All news about the new mortgage law

The new mortgage law regulates relevant aspects of home purchase loans such as commissions, related products, the distribution of processing costs or the information that consumers must receive before signing a contract with their bank.

The new mortgage law is already beginning to be applied effectively. With its entry into force, aspects such as commissions, information prior to contracting or the distribution of the costs of formalizing loans for the purchase of a home will have new regulations and even new limits. So you know what consequences the new mortgage law may have, what can change if you are thinking about applying for a mortgage or how it will affect the one you currently have.

Fees

The new mortgage law does not limit the opening fees, but establishes that this will be the only one that can be charged when you take out a loan to buy a home. Therefore, this charge will have to include all the expenses that your entity would like you to pay.

 

Early repayment fees

The new mortgage law establishes new limitations for early repayment fees, which are those paid when you pay back part or all of your debt early.

 

WITHDRAWAL FEE (for variable and fixed mortgages)

The bank may choose one of these two formulas:

• During the first five years of the mortgage’s life, the limit to be applied will be 0.15%.
• During the first three years, the cap will be at 0.25%.

 

Change from a variable to a fixed mortgage

With the arrival of the new mortgage law, the novation commission – which is the one paid when you want to change a variable mortgage to a fixed one – becomes limited. Specifically, banks may not collect more than 0.15% during the first three years of the mortgage’s life. From the fourth year, entities may not charge anything for this operation.

 

Linked Products

The so-called «linked products» are all those insurances, pension plans or any other financial that a bank used to offer you in order to lower the interest on your mortgage. The new mortgage law will distinguish between two different types of links, and only one of them will be allowed:

• Linked sales: these occur when a bank offers you, in the same pack, a mortgage and other products, such as insurance, accounts or pension plans. With the new law, they will be prohibited.
• Combined sales: they consist of presenting the mortgage and the other products separately, so that the client can contract whatever he wants. These sales will be allowed.

 

Processing fees

With the new mortgage law, it is fully defined who will have to assume each of the expenses derived from contracting a mortgage:

The client will assume the appraisal expenses and, in case he wants a copy of the deed, the corresponding notarial fees.

The bank will pay the rest, that is, the expenses of the agency, the notary fees, the registration and the tax of Patrimonial Transmissions and Documented Legal Acts, that is, the mortgage tax.

 

Information before applying

With the entry into force of the new mortgage law, banks must give you at least 10 days before you decide to link to one of them (e.g. signing a contract:

• The FEIN or European Standard Information Sheet
• The FiAE or Standardized Warning Sheet
• A document with simulations of your fees
• A copy of the draft contract.
• Clear information on the expenses that correspond to the bank and the client.
• The conditions of the insurance guarantees that you require
• Information about the free advice that the notary must give you

When you have received all these documents, you must record in writing that this has happened. In addition, the bank must send all this information to the notary of your choice and this professional must check that everything has been done correctly and give you personalized advice to resolve all your doubts.

 

Land clauses

With the new mortgage law, problems such as those caused by the famous land clauses should not be repeated. In this sense, the norm establishes that, if a variable mortgage is contracted, no limits can be set to lower the interest rate. That is, if the reference index of your mortgage – for example, the Euribor – is reduced, the interest you pay and, therefore, the installment, will also decrease.

 

Early maturity

The early maturity clause is the one that is activated when a client stops paying their mortgage and, therefore, allows a bank to start with the procedures to repossess a home. With the new mortgage law, three requirements will have to be met for this clause to start working:

1. That the client has stopped paying the mortgage
2. That the amount added by the installments that you have not paid equal, minimum:

           – At 3% of the capital lent by the bank (or 12 installments), if you have stopped paying during the first half of the duration of the mortgage.

           – At 7% of the capital loaned by the entity (or 15 installments), if it has stopped paying during the second half of the duration of the mortgage.

       That the bank has asked the client to pay her debt, has given her a period of one month to do so and has informed her that, if she does not do so, the early maturity clause will be activated.

 

Default interest

According to the new mortgage law, the default interest on mortgages –that is, those charged by a bank when the consumer is late in paying its installments- will be limited to the interest paid by the consumer, plus three percentage points. Therefore, if a client was paying 2% for her loan, her bank could not apply more than 5% if she was late in paying the installments.

The new mortgage law makes it easier for a consumer to take their mortgage to another bank, that is, to make a subrogation. With the new mortgage law, the client will be the only one to decide whether he prefers to go to another bank (which has already made him an offer) or to keep his (if his offer is better).

 

Subrogación

The new mortgage law makes it easier for a consumer to take their mortgage to another bank, that is, to make a subrogation. With the new mortgage law, the client will be the only one to decide whether he prefers to go to another bank (which has already made him an offer) or to keep his (if his offer is better).

In addition, new deadlines are established: once the consumer has accepted the offer of the new entity, it will notify the current bank, which will have seven calendar days to certify the amount to be subrogated. Once this procedure has passed, the bank of which the consumer is still a client will have 15 calendar days to present a counter offer, but if he does not accept it, after that time the subrogation will proceed.

 

Remuneration and knowledge of those who grant a mortgage

In addition to everything explained above, the new mortgage law also establishes changes that will directly affect those who are dedicated to granting mortgages:

1. The personnel of the entities dedicated to selling mortgages will have to have specific training, although the new norm does not specify what it will be, but the Ministry of Economy will have to determine it.
2. Incentives may never be offered to personnel dedicated to assessing the creditworthiness of customers for taking on more risks than are appropriate for each consumer. Neither can their remuneration be linked to the number or proportion of applications that they accept.

 

What mortgages does the new mortgage law affect?

All the changes that the new mortgage law will imply will apply to the loans that are signed once it has entered into force, with two exceptions:

1. If you have a previously signed mortgage and want to make a novation (to change your interest from variable to fixed, for example) or a subrogation, what the new law says will apply.
2. If you have a mortgage signed with a previous one and you have an early maturity clause, what the new regulations say will apply, unless what your contract says is more favorable.