Last Friday, November 10, 2017, the Cabinet of the Spanish Ministry of Economy represented by Luis de Guindos, approved in the Council of Ministers draft amendments of the law on Mortgage Credits.

This Law aims at modifying the mortgages situation.

Major reforms of the new mortgage law

This new reform includes the following improvements

1 Evictions

Banks used to need three payment defaults so far in order to start the eviction process, whereas this is now increased to a default of up to nine payments or an amount of 2% of the debt. In the second half, non-payment may amount to twelve monthly installments or 4% of the amount due.

2 Interests on arrears

Interests for paying late may reach 9% if made pursuant to the rate set in the 2017 Budget.

3 Commissions on early repayment

These commissions are lowered, and even eliminated after three or five years as of execution of the agreement. In the event of a five-year term, clients shall pay 0.25% of the anticipated amount. In the event of a three-year term, the commission shall amount to 0.5%.

4 Fixed-rate loans

The highest rates set out in the draft will be 4% of the advanced amount if it is returned within the first 10 years, and 3% if later than that. There are currently no legal limits in connection with fixed-rate loans. It is important to note that this amendment is not retroactive. In addition, the new law will also enable going from a variable-interest mortgage to a fixed-interest one.

5 Higher Transparency

The Government will ensure that mortgagors sign before a notary public and that they understand the risks and conditions of the loan. In addition, there will be a standard form stating the features of the agreement and the warnings of the more sensitive or opaque clauses for consumers such as:

  • Floor clauses
  • Terms on early repayment
  • Detail of previous costs
  • Operating of multi-currencies.
  • Distribution of mortgage costs between the Bank and the borrower.

6 Prohibition on mortgage-related products sale

The entity, by law, must submit two budgets: one with no associated products and another one with them, including their costs explicitly.

7 Bonuses on mortgages granted

The Government will forbid entities paying bonuses to their employees based on the number of mortgages granted.

8 Currency exchange

Following judicial outrages in connection with multi-currency mortgages, consumers may change currency to euros at any time.

9. The self-employed:

This new legislation also applies to the self-employed.

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