On June the 16th 2019, new mortgage in Spain regulations were put in place.
The new regulations are part of an ongoing EU directive to bring mortgages in Spain and all EU lending across member states into line and to improve the transparency and behaviour of mortgage lenders.
Over the past few years, Spanish lenders have come under scrutiny for dubious activities like implementing mortgage floor rates ( the rate below which your rate could never fall) along with lack of explanation of the products, obligations to purchase additional services such as insurances and restrictions and lack of flexibility within the market.
In order to better understand how these new mortgage in Spain 2019 regulations, we asked our partner mortgage broker to explain …
What do the new mortgage in Spain 2019 regulations mean for you (the purchaser)?
One of the many advantages to you, the purchaser, is that you can now choose which valuation company values the property you are buying for mortgage purposes. As long as the company is approved by the Bank of Spain, the valuation should be accepted, however, we have heard from one bank that they will instruct a second valuation to verify the first one, so it remains to be seen how this will work in practice. We all know a poor valuation can result in a sale falling through, so this is potentially a huge breakthrough, as you are no longer restricted to the bank’s own panel of valuation companies.
Other advantages include lower set-up costs, lower early redemption penalties, control over any rise in interest rates (the mortgage rate can never be increased by more than 3%) and a ban on forcing you, the purchaser, to contract add-on products (such as savings plans, pension plans, etc.) in order to qualify for a discounted mortgage rate. Banks now also have to wait for up to 24 months of payment defaults before they can repossess a property.
One aspect of the new law that could potentially be seen as a disadvantage is the introduction of a new cooling-off period, similar to the 15-day one that already exists in Catalunya. Under the new law, which applies nationally, you must sign the new FEIN mortgage offer document and then at least 10 days must pass before you can complete the purchase. In addition to this, you are supposed to attend the notary office in the 10 days before completing the purchase and not less than one day before, in order to complete a test to show that you understand the terms of the mortgage and also the property purchase. Lawyers might be able to attend one or both of these meetings at the notary on your behalf but under strict conditions.
Another important change concerns the currency of potential borrowers’ (ie. your) earnings. Under the new law, if a mortgage holder has earnings in any currency other than Euros and that currency drops in value against the Euro by more than 20%, the mortgage holder has a legal right to request that the mortgage converts from a Euro-denominated mortgage to one in the currency of their earnings. The banks see this a high risk and we are seeing them react to this in different ways. One bank is no longer offering mortgages to those not earning in Euros, while others are no longer offering fixed rates to these applicants and others are telling us there is no change, so we are seeing both extremes in terms of the reaction to this new rule.
How have the new mortgage in Spain 2019 laws affected the mortgage market in general?
Mark Stucklin from Spanish Property Insight (SPI) wrote in an article recently that the additional complexity of taking out a mortgage may put off some foreign buyers, as they may view it as too much trouble, especially if they have to visit the notary up to 10 days before completion, which could potentially result in higher costs, e.g. for flights, hotels, time off work, etc.
Our experience so far is that whilst it’s been a nuisance for clients to make the additional visit to the notary prior to completion, it hasn’t put many, if any, off from inquiring about or signing up for our service. In fact, last month we saw a 15% increase in enquiries compared to the preceding two months. We feel it is too early to know to what extent any negative press or opinions regarding the regulatory changes will filter through to potential borrowers and what effect this might have.
In summary, borrowers are now afforded far greater protection and face much lower set-up costs, which must surely be welcome? The downside is that the process has become more complex and with the banks feeling the pinch, we may well see further increases to interest rates and/or higher opening commissions to compensate them for their reduced profits on mortgages. We will be watching the situation very closely over the coming months and will be back in contact in September to share further insights with you.