How does the new mortgage law affect you?
The Congress of Deputies approved yesterday, Thursday, February 21, the new real estate credit law. The regulations arrive in Spain almost 3 years late, they should have been implemented before under the guidelines of the European Commission. But better late than never, right?
How does the new mortgage law affect you?
The good news is that this new real estate credit law aims to provide more security and greater transparency in all real estate credit processes. That is, you want it to be safer and easier to apply for a mortgage as clients.
The main changes we see with this Mortgage Law are the following:
Distribution of expenses involved in the constitution of a mortgage.
Hardening conditions for banks to request an execution or eviction.
Strengthening of solvency analysis to customers.
Control of commissions that entities can charge.
The possibility of canceling the mortgage without paying for it.
Who pays the mortgage expenses?
The new regulations establish that it will be the banks that assume all mortgage expenses (notary, registration and management) except those related to the appraisal of the property, which consumers will pay.
It will also be the entities that pay the AJD tax (Documented Legal Acts) as we already explained in our blog article.
More difficult to execute an eviction
The new law extends unpaid installments to 12 or 3% of the principal capital lent in the first half of the life of the loan in order to execute an eviction. For the second half of the loan, it is extended to 15 installments or 7% of the borrowed capital.
Although this will not affect the embargoes currently suspended and pending resolutions of the Court of Justice of the European Union.
Reduction of early redemption fees
Commissions are halved for fixed rate mortgages (2% during the first 10 years and 1.5% from this period) while the client should choose the type of repayment at three or five years when their mortgage either at a variable rate (with commissions of 0.25% or 0.15%, respectively).
The dation in payment of the property
Although to date the possibility of including the payment dation as mandatory was considered, it does not appear in the new regulations. This controversial measure proposes that in case of default the property can be delivered as a form of payment to pay off the debt.
To date, this did not happen, but the new mortgage law opens the possibility of adding a clause in the mortgage contract if agreed upon by the bank and the client.
From now on the banks have the obligation to consult the customer’s history in the Central of Risk Information of the Bank of Spain. The objective of this measure is to reduce the risk of default.
We say goodbye to the ground clauses
In this way the client can benefit from the Euribor drops, although it should be clarified that the minimum interest charged by the bank will be 0% and will never be negative.
The subrogation of the mortgage will have no costs, the modification of the debtor or the creditor of the loan will be free.
The bank will give the client 10 days to analyze the information and a standard file is created for customers to compare
Creation of the Independent Consumer Defense Authority, responsible for ensuring protection and transparency in real estate contracting.
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When will the new mortgage law take effect?
The reform is still pending ratification in the Senate and being published in the Official State Gazette (BOE), but it is estimated that it will be implemented within 30 days, at the end of March.
Why is it approved now?
As we explain at the beginning of this article, this law is almost three years late. This law transposed the European legal system to Spanish and had until March 2016 as a maximum period to do so.
In the absence of a change in regulations, the European Commission denounced Spain for the delay before the Court of Justice of the European Union (CJEU) and this situation could result in a fine of more than 100,000 dollars per day. Finally, the Government has managed to promote the new mortgage law and is expected to circumvent the fine.