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How Spain’s new mortgage laws could affect homeowners

Spain's new mortgage laws have come into effect. Here's what you need to know.

How Spain's new mortgage laws could affect homeowners
Photo: AFP

After two years of waiting, Spain's new mortgage laws come into effect this month. These laws stem from an EU directive to align mortgage laws within EU member states and to improve the behavior of mortgage issuers.

In the past, Spain's mortgage laws were very favorable to banks and often punitive to borrowers. The new laws are very good news for homeowners and people wishing to purchase property in Spain.

Keep reading to learn the changes that will affect borrowers the most.

Longer default period before repossession


Photo: podsolnukh/Depositphotos

This is the best news for homeowners. In the past, Spanish mortgage laws allowed lenders to begin the repossession process if a borrower was three months late in their mortgage payments.

Moreover, the current three-month rule was a recent change. Following the 2008 financial crisis, lenders could repossess a home if a borrower missed only one monthly mortgage payment.

Spain's new mortgage laws state that:

  • In the first half of the mortgage term, lenders cannot repossess a property until the borrower is 12 months late in their mortgage payments, or the total amount of their arrears is more than 3 percent of the total capital loaned.
  • In the second half of the mortgage term, lenders cannot repossess a property until the borrower is 15 months late in their mortgage payments, or the total amount of their arrears is more than 7percent of the total capital loaned.
  • Late payment fees can be no more than 3 percent of the amount in arrears. Before the new mortgage laws, late payments fees were up to 12 percent.

More mortgage fees paid by the banks


Photo: photography33/Depositphotos

This is another game changer for borrowers. The fees associated with a Spanish mortgage are:

  • Fees paid to a gestor. Gestor fees generally amount to a few hundred euros.
  • Fees paid to the Notary.
  • Fees paid to the Land Registry. Fees paid to the Notary and Land Registry usually amount to around 10percent of the property value.
  • The AJD (Actos Juridicos Documentados), or mortgage tax. Depending upon the region in which you reside, the AJD can amount to up to 2.5 percent of the property value.
  • Property valuation fee. This typically amounts to 0.1 percent of the property value.
  • Mortgage origination fee. On average, this amounts to 1.5 percent of the property value.

In the past, ALL of the above costs were born by the borrower. Spain's new mortgage laws state that lenders must now pay all of the above fees, except for the property valuation fee and origination fee. So, banks have gone from paying none of the mortgage fees to paying the majority of the fees.

Lenders can no longer force borrowers to purchase other products

Spanish banks are geniuses at cross-selling. In the past, they required borrowers to purchase life insurance and home insurance before issuing a mortgage. Now, they must allow borrowers to accept insurance from external carriers. Moreover, they cannot threaten to raise the interest rate if the insurance is issued by a third party.

'Floor clauses' will be removed


 

Photo: aeydenphumi/Depositphotos


 

Prior to Spain's new mortgage laws, lenders put a floor on variable rate mortgages. Meaning if interest rates went up, they made more money but they were protected if interest rates fell. Now, the floor is 0 percent of the mortgage rate (not EURIBOR).

This provides additional protection for borrowers since a mortgage interest rate is always higher than EURIBOR. This is particularly relevant in the current environment, where EURIBOR is currently in negative territory.

Spain's new mortgage laws will allow borrowers to convert foreign currency denominated mortgages into euros

Bank clients with mortgages denominated in currencies other than the euro have the right to convert their mortgage to euros at any time. Additionally, banks must periodically inform their clients if their total debt is increased due to currency fluctuations.

If the above requirements are not honored by the bank the contract will be considered void. Interestingly, the borrower could demand that their mortgage is converted to euros retroactively and that all over payments in the other currency be deducted from the pending capital of the mortgage.

It will be cheaper for borrowers to repay their mortgages mid-term

Early repayment fees are cheaper and can only be assessed if the bank will incur a loss from early payment. Repayment fees ahave now reduced from 0.5 percent within five years of a variable rate mortgage to 0.25 percent within three years and 0.15 percent if repayment occurs within four to fve years of mortgage being taken out. There will be no fee if repayment occurs after five years.

Additionally, banks will no longer be able to delay the early repayment of a mortgage, which happened in the past. Spain's new mortgage laws stipulate that the maximum notification time a bank can demand is one month. After notification of intent to repay the mortgage, banks have three working days to assess the demand and provide the relevant information.

It will be cheaper to convert a floating rate mortgage to a fixed rate mortgage

Spain's new mortgage laws stipulate that banks can charge no more than 0.15percent to convert a mortgage from a floating to a fixed rate. These can only be assessed in the first three years of the mortgage. After that, the fee is 0percent. However, in this instance the borrower must pay the associated notary and Land Registry fees.

More protection for consumers

The new laws contain a number of other conditions to protect consumers. The primary ones are:

  • The standard mortgage offer document, called a FIPER, will be replaced with a FEIN. Much more detailed and transparent than the FIPER, it will allow borrowers to shop around for their mortages. If the mortgage is floating rate, the borrower will also receive a separate document outlining the potential effect of interest rate fluctuations.
  • A 10 day “cooling off” period. Borrowers must wait 10 days between receiving a FEIN and signing the loan documents.
  • Borrowers must take a small test at the notary to demonstrate they understand how the mortgage works.
  • The Banco de España will create a new agency to process mortgage related complaints and claims.
  • All commissions granted to lenders for issuing mortgages must be fully transparent.

Conclusion


Photo: AFP

Spain's new mortgage laws are a welcome addition. Not only will they protect consumers, they will also stimulate the housing market as currently, many Spaniards are terrified of taking out a mortgage and the fees involved. Additionally, the foreign currency conversion provision provides additional protection for expat borrowers.

 

This advice has been supplied by Moving2Madrid. If you are relocating to Madrid and want advice on buying contact Moving2Madrid to make an appointment for a free consultation.

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PROPERTY

Ten ways under-35s in Spain can get help to buy a home

Buying a home is particularly difficult for young people in Spain, with low wages, job instability and rising property prices making it a pipe dream for most. But there are several schemes throughout Spain to help make it a reality.

Ten ways under-35s in Spain can get help to buy a home

Many young people in Spain who can afford to move out of their parent’s house cannot yet afford to buy their own home, with down payments and securing a mortgage two of the biggest problems.

According to FotoCasa six in 10 young people in Spain between the ages of 18 and 34 have tried to buy a property, but without success.

The Emancipation Observatory of the Spanish Youth Council (CJE) adds that currently in Spain 59.2 percent of young people rent, while only 17.4 percent own their own property and pay a mortgage. Data shows that most Spaniards aren’t able to buy their own property until they are 41 years old. 

Luckily there are now several government schemes across the country that aim to help young people get on the property ladder. Here are 10 ways that under-35s can get help to buy their first home.

Buying a home in a rural location

The Spanish government introduced a subsidy of €10,800 for those under 35 who wish to purchase a property in towns or villages with less than 10,000 inhabitants, in a bid to help solve the problem of declining rural populations, as well as the issue of young people not being able to afford to buy a home. This is available until December 2022 and can be applied for through the authorities in your region. 

Andalusia

Andalusia announced its ‘First Home Programme’ earlier this year, which is independent but runs parallel to the State Housing Plan. It includes aid of up to €10,800 for the acquisition of habitual residence for young people under 35.

Castilla y León

Those in Castilla y León can apply for aid if they want to live in the province of Soria. Aid is available up to 50 percent, up to a maximum of €5,000 to buy in rural areas within the province. People up to the age of 36 can apply. Find out more on how to apply here

Canary Islands

Young people from the Canary Islands can apply for a housing benefit in 2022 of 20 percent of the cost of the property up to a maximum of €11,000. You are eligible up until the age of 36. Find out more about the aid here

Galicia

Galicia is giving assistance to those wanting to buy in the historic centres of towns and cities. Those aged 35 and under can get up to €12,800 to help them do this, which in turn will help to revive and rejuvenate the oldest parts of the region. You need to apply here before November 15th in order to be in with a chance. 

Madrid

In July 2022, the government of Madrid announced an aid package for young people aged 35 and under. The banks, along with the government of Madrid, will grant mortgage loans for amounts greater than 80 percent and up to 95 percent of the value of the property, provided that the purchase price doesn’t exceed €390,000.

READ ALSO: Why Madrid is now the easiest place in Spain for under-35s to buy their first home

Murcia

The government of Murcia guarantees an aid package of 20 percent, up to €10,850 for those up to the age of 35 who want to buy their own home by getting a mortgage loan. Find out more and apply for the aid here

Valencia region

In Spain’s Valencia region, the Ministry of Housing and Bioclimatic Architecture aims to help make it possible for young people to buy a home who might not otherwise be able to, as well as help towns and villages that are at risk from de-population. The amount each applicant can get will be 20 percent of the value of the price of a house, up to a maximum of €10,800 per person. The cost of the property cannot exceed €120,000 and it must be your main and permanent home. It is available to those up to the age of 35.

READ ALSO: How young people in Spain’s Valencia region can get €10k to buy a home

Aid for large families

Large families or familias numerosas as they are called in Spanish are defined as families who have four or more children. Large families can also benefit from state aid when buying a property, which is €10,800 as long as it does not exceed 20 percent of the property price. When buying a property, these families can also get help by benefiting from a discount on the payment of the Property Transfer Tax (ITP), up to four percent on second-hand purchases. 

Aid for renting

If you can’t yet afford to buy your own property, there are several benefit schemes for young people to be able to move out of their parent’s home and be able to rent instead. The Bono Alquiler Joven allows those between 18 and 35 to get €250 per month to go towards rent and is available across the country. There are various other schemes in different regions too. Find out more and apply here

Be aware, most of these schemes are only available for certain amounts of time and strictly for those who do not already own a property. There may also be prerequisites on the amount of time you have lived in each region. For example, those wanting to benefit from the aid package in Madrid must have lived in the region for the two years leading up to their application.

There are also certain limits as to the amount you can earn in order to be eligible for the benefit. In Valencia, your income must be equal to or less than three times the IPREM (€6984.24 per year for 2022).

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