Mortgage market news in Spain

Demand for mortgage loans to buy housing in Spain continues to grow. In January and February were signed 67,850 loans, 10,000 more than last year. After 2013, there has been progress in the economy and a rise in living standards, which has given new impetus to the housing market and, accordingly, the demand for new loans is increasing. Spanish families are gradually relieving themselves of the heavy burden of pre-crisis mortgage debt and are ready to take on new, more adequate ones.

"Strong arguments for relieving old debts are: economic dynamism and falling unemployment, the large weight of housing in maintaining the prosperity of Spanish families and the favorable financing conditions offered by banks. But the level of family debt, even against the backdrop of improvement in recent years, surpasses the European average, although it is also undoubtedly that having a home in ownership in Spain is more popular than in other countries," explains José Luis Martinez Campusano, spokesman for the Spanish Banking Association.

This fact is good news for banks that have been struggling for years to repay millions of loans to be paid. Of course, the new mortgages somewhat compensate for banks' losses on boom-aged housing loans, but, according to Juan Villene, an analyst at the Idealist's real estate portal, despite the fact that the signing of new mortgages «helps the financial sector to strike a balance sheet, but the final battle banks have not win yet». Perhaps, the final result should be expected in the current year.

According to the AHE (Spanish Mortgage Association), this year is a very favorable year for mortgages, given the tendency of banks to provide them. Also stimulate the market historically low interest rates on loans. Bank analysts also anticipate the stability of the mortgage market, based primarily on the latest published data. The residential sector is responsive to the proposals of bank financing, as it is due to this more and more Spanish families decide to buy housing on credit. 

The new mortgage law, which came into force on 17 June 2019, also contributes to the promotion of mortgages, making them more transparent: it obliges banks to provide full information to the client throughout the loan term. Thanks to this law, the Spanish credit market is becoming more orderly legally and as close as possible to the European directives on consumer protection.

Among the main novelties of the mortgage law are the following points: the limitation of commissions for early repayment, the abolition of illegal contract articles, greater protection of the client in the event of withdrawal of housing for non-payment of the loan, issues of cost allocation and transparency of information.

Article 6 of the Law clearly states that "the information that is foreseen in the mortgage agreement as normative is explained to the client who is taking a loan, even before signing, and must meet the following characteristics: 

• Reflect clearly and specifically the conditions set out in the mortgage agreement, and do not omit or diminish the importance of any important detail. A concrete example of such information is the amount of bank charges or possible changes in interest rates,
• It is not permissible to highlight any potential benefits associated with this contract and to conceal certain risks that are an integral part of the loan,
• The customer has the right to know how the information contained in the contract will be or may be used.

The law provides for a new distribution of mortgage-related costs. Banks pay for paperwork, registration, notary services, mortgage tax, bank copy of the deed. The consumer bears much less expenses than the previous ones, and pays only for the services of an appraiser and his or her own copy of the deed.

The new law is fully aimed at protecting consumer rights, in accordance with EU requirements:

• More complete customer information,
• Obligatory visit of the notary before the transaction to obtain clarification on the points of the contract,
• The notary and registration authorities may not prescribe or register contract points that may cause harm to the consumer. All items that contradict the regulations are declared invalid by law,
• A new service has been established in the Bank of Spain to deal with complaints and contentious issues,
• Salaries of bank employees cannot depend on the number of mortgages issued, as it can damage the careful examination of applications.

Penalties for early repayment of the mortgage loan have become much lower. The bank can only claim compensation for financial losses, but even in these cases limits are set:

• With a floating interest rate of 0.25% for the first 3 years and 0.15% for the first 5 years, the commission fee is 0% after this period,
• In case of a fixed interest rate, the compensation can reach 2% during the first 10 years, and 1.5% - during the remaining term of the contract,
• In order to use your right to repay the mortgage ahead of time, the client must notify the bank 1 month in advance.

The new law reduces the possibility of replacing the floating interest rate with a fixed one. The maximum commission, which can be requested by the bank only during the first 3 years, is 0.15%.

According to the new law, the process of transition from one bank to another at the stage of interest rate discussion is greatly simplified.

In order for a bank to be able to apply to the court for the alienation of a defaulter's housing under a mortgage loan, the following conditions are required

• during the first half of the loan period only after the non-payment of 12 quotas (3% of the received capital),
• during the second half of the loan period, only after 15 quotas (7%) have not been paid.

A commission is also established for delayed payments: no more than 3 points above the mortgage interest rate.

There is also a limit on related services, i.e. banks are prohibited from imposing other services on clients as conditions for obtaining a mortgage loan (mortgage insurance, pension plans, credit cards, etc.). Nevertheless, banks are allowed to offer such services in exchange for lowering interest rates on loans. Banks may require: life insurance against either damage or non-payment of established quotas, but the client can choose the company to conclude the relevant contracts.  The law reserves the right for financial institutions to include related services in mortgages only if the client has a significant benefit from them, giving the client the right to choose to evaluate such services.

The law regulates the activities of financial intermediaries between banks and clients:

• The Bank of Spain shall establish a register of such intermediaries to monitor them,
• They can't be tried or declared bankrupt,
• Commission intermediaries must be brought into line with interest rates and mortgages.