Since Monday 17 June 2019, Spain has had new regulations on home loans, now known as the Mortgage Law. The process of drafting these regulations has been no easy task, with more than three years of delays – a real obstacle course. But as the saying goes, better late than never… The debate surrounding this law has been particularly lively, especially on the question of its retroactive application. To cut through the rumours: no, the new mortgage law will not apply its provisions retroactively across the board. In other words, contracts signed before it came into force will not be affected by the new law. Here’s how it works!
The key measures
Are you an expat living in Valencia or in Spain in general? Good news for those of you who already have an outstanding mortgage: under certain conditions, you will still be able to take advantage of the new provisions, even if your contract was signed before 16 June 2019. The key measures include:
- The possibility of upgrading a variable-rate mortgage to a more advantageous fixed rate;
- Tougher conditions for activating the mortgage guarantee in the event of payment default;
- The freedom to change banks without being hindered by a counter-offer from the original institution.
Key benefits of Spain’s new mortgage law
Spain’s new mortgage law has three main aims: to strengthen consumer protection, to guarantee greater transparency and to distribute costs more fairly between customers and financial institutions. With this reform, Spanish legislators clearly aim to put the customer at the heart of the system, by ensuring that every borrower has a full understanding of the terms of their loan before signing anything.
One of the key aims of this law is to limit disputes, which are often the source of lengthy legal battles over sensitive points such as floor clauses. To achieve this, the law changes the way in which the burden of formalising the mortgage is shared. Whereas previously customers had to pay all the costs, from now on they will only pay for the valuation of the property and copies of the notarial deeds.
Another notable advantage is the extension of the time required to activate the mortgage guarantee. The bank will no longer be able to foreclose until the customer has been in arrears for twelve months or the amount outstanding reaches 3% of the loan in the first half. Previously, a simple three-month delay was enough to trigger this procedure. For the second half of the loan, this threshold rises to fifteen months late or 7% of the loan amount.
Impact of the new Mortgage Market Act 2019
Until the new mortgage law came into force, the market was rather sluggish, but in anticipation of the regulatory changes, some banks had already taken the initiative by absorbing all the costs, including those relating to the valuation of properties, to attract customers. And with the implementation of this law, the banking sector is set to be transformed from top to bottom…
Indeed, we can expect to see genuine competition between the banks, a sort of ‘mortgage war’, to win over customers looking for property finance, a dynamic that should enrich the range of products on offer.
The role of the APR
One aspect that is often overlooked by borrowers is the importance of the TAE (TAEG in France), which represents the total cost of the loan. In the past, many borrowers simply compared interest rates without taking into account other potential charges included in the NIR (nominal interest rate). The new legislation promotes greater transparency: banks must now detail all the costs associated with their loans to avoid any nasty surprises for customers, while enabling them to make more informed choices.