Since June 17, 2019, all mortgages granted by banks in Spain must comply with a new Mortgage Law. This Law, called the Real Estate Credit Law 5/2019, offers more security and transparency to both banks and clients, and affects all citizens as potential contractors of a loan or a mortgage.
A new Mortgage Law necessary and preceded by controversy
The new features included in this new Mortgage Law are in accordance with the European legal system and fundamentally affect the person responsible for paying the expenses derived from signing the mortgage contract.
In this way, it is intended to eliminate the abusive clauses imposed by some entities, a fact that has generated much controversy in recent years and that has been the source of debate and different court decisions, some of them contradictory or controversial.
Thus, the new Mortgage Law aims to establish a new general framework with Sky Marketing, much more transparent for mortgages, that protects consumers. However, and as is usual when economic measures are taken, the Real Estate Credit Law 5/2019 came into force last July involved in some controversy.
The most prominent is the requirement for financial entities to deliver to notaries, chosen by clients, a battery of documents electronically, in a short period of time and through a single digital platform, something that has generated complaints around the operation, security and management of the same.
Along the same lines, the new operation of our mortgage law raised doubts in the Bank of Spain, since the new solvency tests applied by the banks are much more exhaustive. This could lead to an increase in the cost of mortgages and a tightening of their concession in the profiles of clients with greater risk. This, in general terms, translates into more difficulties in accessing a mortgage and, therefore, a first home.
On the other hand, there are many consumers who, as they do not know well how the new mortgage law works or how it affects them , are reluctant when it comes to requesting a loan, which has paralyzed their applications, creating some nervousness in the real estate sector.
Below we explain in detail how the new mortgage law works and solve some frequent doubts about it.
The most important changes of the new Mortgage Law
Mandatory appointment with the notary
The most important change in the new Mortgage Law is that clients have the obligation to go to the notary at least 10 days before signing the mortgage, to analyze the conditions of the mortgage contract sent by the bank and solve their possible doubts. Without these days of margin, the mortgage will be canceled automatically. After that time, the representatives of the bank and the client must meet again with the notary to sign two contracts: the one for the sale of the home and the mortgage loan deed.
The purpose of this new period of 10 days observed by law is that the consumer knows all the information about his mortgage in advance and can study it, contrast it or compare it. Said information, sent by the bank and much more exhaustive, must be sent to the notary’s office electronically for verification.
Limitation of amortization fees
Another major change that notably affects how the new mortgage law works is related to the limitation of commissions for amortization. With the new Law, these are established according to the interest rate of the mortgage (fixed or variable), and depending on the moment of its cancellation.
Goodbye to the floor clause
The third big change is the ban on the famous “floor clause. ” Likewise, with the new Real Estate Credit Law 5/2019, the debtor’s limit is extended before the bank can start the foreclosure. According to this clause, known as the “early maturity clause”, to activate a seizure or eviction the consumer must default, at least, 12 monthly payments or a 3% default on the total volume of the loan.
The new Mortgage Law also makes the process of converting a variable mortgage to a fixed one cheaper, the default interest is limited and the granting of a mortgage loan is prohibited from being subject to the contracting of products such as life and home insurance , etc.
Questions and answers to understand how the new Mortgage Law works
It is possible that you still have doubts about more specific aspects or about how this news may affect your mortgage. Here’s how the new mortgage law works :
Who is affected by the New Mortgage Law?
The new Mortgage Law is not retroactive, that is, its changes only affect mortgages signed after its entry into force. In fact, all deeds prior to June 16, 2019 are governed by the old regulations.
What requirements must I meet now to access a mortgage?
With this new Law, banks are obliged to carry out a solvency test before granting any mortgage. This test does not entail an extra cost for consumers, although it imposes more demanding conditions. For example, if a couple asks for a mortgage, both partners must meet the established requirements. With the new Mortgage Law, the comparative “loan-value of the property” or “debt-income” also have more value than other factors that were previously determining factors such as guarantees.
What information must banks give me before signing?
In the pre-contracting phase of the new mortgage, banks must provide their clients with a lot of documentation, mainly the European Standard Information Sheet (FEIN) and the Standardized Notice Sheet (FiAE). These documents contain personalized and general information about the mortgage, for example how the loan expenses are distributed, the applicable clauses, a table on amortizations and a simulation of the variation of interest based on various scenarios, as an example.
What does the first visit to the notary consist of? How much will it cost me?
The first visit to the notary serves to record that the client knows what to sign. At this meeting, the applicant will not be able to receive the deed or any official document, but may ask the questions it deems necessary and which will be recorded in a minute. This visit is free.
What expenses will I assume as a client when contracting the mortgage?
One of the main novelties and one that affects how the new Mortgage Law works are the costs incurred by the client when signing the mortgage contract. If previously consumers assumed the expenses of management, notary, home registration and appraisal , with the new Law they will only pay the appraisal and the copies of the extra deeds that they request.
Will I be able to change the conditions of my mortgage?
The new Mortgage Law makes it easier for clients to negotiate new conditions for their mortgage, especially in the case of extensions, novations and subrogations. If the change is made by referring the mortgage to another entity, the bank’s commission may not exceed 0.15% of the repaid capital.
At Tajarat properties we advise all our clients on the entire home buying process, from finding a property to comparing mortgages.
Do you have doubts about how the new Mortgage Law works and how it will affect you when buying a home? Contact us.