Since Monday 17th June 2019 the new mortgage law in Spain has finally entered into force after three years of delay of the term imposed by the European Commission. The new norm arrives with several controversies in its way. The new regulation incorporates the European directives on consumer protection and includes several beneficial aspects for the client. It will affect the mortgages that are signed as of today, although there are aspects that will also influence those who already contracted a mortgage loan.
From now on, the entities will have to assume the notary expenses of notary, agency and registry, enabling clients to save an average of between 500 and 1000 euros, among many other aspects.
Most of items are not retroactive to mortgages signed prior to 16th June. Some interesting measures will be applied such as lowering the conversion of a variable mortgage to fixed rate and the hardening of the conditions to be able to execute the mortgage in case of non-payment. And, in addition, consumers will be able to change bank without their entity being able to prevent it with a counteroffer.
The advantages of the new mortgage law in Spain
The new law’s objectives are to facilitate consumer protection, transparency and more equitable distribution of expenses between the client and the financial entity. With consumer protection and transparency, they want to correct some mistakes of the past. Now with this new norm, lawmakers want customers to know their loans in detail and know what they are signing for. This way the demands in this sector that in the last years has been the centre of the judicial processes due to issues such as the clauses floor or the IRPH, will be reduced.
In terms of expenses, the norm distributes in a more equitable manner the costs of formalizing the mortgage. Before the client paid everything and now only pay the valuation and copies of the notary.
You will pay less if you choose the fixed rate
According to the actual text of the Real Estate Credit Contracts Regulatory Law, one of the retroactive measures is that which lowers the conversion of a variable mortgage to a fixed rate. In case of carrying out this operation through a novation or a subrogation, the bank may apply a commission of up to 0.15% of the outstanding capital, which can only be charged if the contract has three years or less of life. After that period, this change will have no commission.
Prior to the entry into force of the law, the usual commission for novation was 0.5%, while the subrogation was up to 0.5% for the first five years and 0.25% later. Therefore, the application of this measure will mean savings for current mortgages who want to go to the fixed rate to always pay the same fee taking advantage of the low rates offered by banks in the current market.
Here is an example. Imagine that you want to pass a mortgage contracted two years ago with a pending capital of 50,000 euros to fixed interest. Before the new law, you would have been charged a possible commission of 250 euros if you did it through a pact with the bank (novation). Now, after the promulgation of the regulations, the maximum compensation will be only 75 euros, which is 175 euros less.
More difficult foreclosures
The second article retroactively applied is the one regulating the application of the early termination clause. It is the previous step that banks give to able to foreclose and repossess the home after repeated non-payment.
Now the bank cannot execute the mortgage until the client does not owe 12 months or 3% of the mortgage in the first half of the loan. Before that they were only 3 months. In the second half of the loan, the execution period goes from 12 months to 15 or 7% of the debt.
Likewise, the Real Estate Credit Contract Regulatory Law obliges the lender to give the debtor a month to get up to date with the pending payments before the execution process can begin. Those already mortgaged can decide between taking these measures or maintain the early maturity originally established in their contract if they consider that it is more convenient, although it is unlikely.
Change bank without limits
With the new mortgage law in Spain, if the client wants to change banks through subrogation, his current entity does not You can enervate the operation, that is, you cannot retain it by default if you submit an offer equal or better.
In this way, the borrower will have the power to decide if he prefers to move to the bank that presents him with an offer of subrogation or if he wants to accept the counteroffer from his entity. If you opt for the first option, the bank you leave will have to pay compensation to the other, which will consist of the part proportional to the constitution expenses that would correspond to the outstanding amount.
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