SPAIN’S new Mortgage Law officially came into effect last month after more than three years of delays and controversy.
Also known as the Housing Credit Law, it should greatly diversify what is on offer for homebuyers while providing better protections.
So what’s so good about the new law?
The costs of a mortgage are now shared in a fairer way, with the banks obliged to pay for the tax, notary, land registry and gestoria fees. There are also caps on what can be charged for repaying the mortgage early. Meanwhile banks are required to be more transparent and ensure clients know the detail of their loans before signing. One of the less well thought out stipulations, however, is the requirement for the borrower to go to the notary to take a test 10 days before completion.
This is clearly unworkable for most non-resident clients and, in practice, it is often being left to lawyers to do this on behalf of the client using their power-of-attorney. This, it is hoped, will reduce the number of lawsuits in the sector which have caused backlogs in the judicial system, most famously in the ongoing floor clause saga. Additionally, the new law is making it harder for banks to foreclose on homes. Lenders can only foreclose if the customer owes 12 months or 3% of the mortgage in the first half of the loan term – before, it was only three months – and is extended to 15 months or 7% of the debt in the second half.
However, it is important to understand that any late payment can have an adverse impact on the individual’s credit score and severely compromise the ability to obtain credit again in the future. The law is not retroactive so the new norms will not be applied to mortgages agreed before it came into effect. Despite this, those already with mortgages could benefit from the changes in the law when renovating or subrogating their loan. The new legislation should reopen the mortgage market after months of uncertainty. Meanwhile, lenders can return to medium and long term strategic planning in their mortgages.
