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The 7 changes in the reform of the mortgage law
13/09/17

The new mortgage law is ready to be passed. After the kick off of the new political year, fresh from the summer break, politicians have pending in their agenda -among many other tasks- the approval of the Reform of the Real Estate Credit Law; a legislation with 2 clear objectives: to ensure and enhance protection to consumers in mortgage contracts and offer legal security to the financial sector.

The reform includes a set of measures that aim to improve the mortgage market, making it easier for consumers to understand the contract. By strengthening the role of the notary public and limiting certain costs and deadlines, the Ministry of Economy aspires -with this amendment- to facilitate the path for citizens in what will probably be one of the most important financial decisions of their lives.

Lluís Català, Forcadell’s Partner-Chief Management Officer and expert in Corporate Real Estate Law summarizes here the main changes proposed in this reform for the mortgage law. For Lluís Català, "with the new mortgage law, Spain will catch up on mortgage legislation, in line with the European legal framework."

2 visits to the notary public: ensuring the understanding of the contract

The consumer will be obliged to make 2 visits to the notary public before signing the contract. In the first one - certified by means of the gratuitous act - the notary must verify that the conditions of the contract conform to legality and that the consumer has received all the necessary information. In the second visit, which was done so far, both the notary and the registrar must authorize or deny the contract depending on the consideration relevant to the clauses.

More pre-contractual information for the client

In order to provide personalized information to the consumer on the terms of the contract, with the new regulations, the bank must provide the customer with the European Standardized Information Sheet (ESIS), a single and uniform model for the entire European Union in which the basic information of the document to be signed is summarized. In addition, the standardized warning card (FiAE) must also be submitted, a document that informs about the clauses or sensitive content of the contract.

“These first 2 measures regarding the information that the consumer should receive in the pre-contractual period benefit both the client and the financial sector. Ensuring the understanding of the contract provides security to both parties since the consumer can decide with the all the information beforehand, and the clauses that the bank proposes cannot be nullified subsequently," says Lluís Català.

Limit on interests for late payments

The new legislation eliminates the possibility of negotiating late payment interest and establishes a limit: 3 times the legal interest of money, which for 2017 has been set at 3%. Therefore, the interest rate for late payments will be, at most, 9%.

Modification of the early expiry date

One of the main novelties of the legislation is the modification of the early expiry clause. Until now the bank could give up a loan from the third month of default on the mortgage payment; with the new legislation, the bank will not be able to execute the mortgage until the amount of the default exceeds 2% of the granted capital or nine unpaid months have accumulated - during the first half of the mortgage's life. As of the second half, the percentage doubles, 4% of the capital, and the time limit is one year.

"Limiting the default deadlines of the mortgage was one of the measures most requested by the citizens, together with the recovered asset payment," Lluís Català details, "but this second stipulation to settle the debt with the delivery of the property remains pending in the reform of the mortgage law “.

Reduction in commisions due to advanced payments 

With the entry into force of the new Real Estate Credits Law, the penalty that the mortgaged person must pay if he repays the loan in advance, either partially or in full, is reduced. The reform of the mortgage law establishes some limits: in the case of variable rate mortgages, the commission will be 0.5% in the first year, a figure that is reduced in the following years until disappearing after the fifth. In fixed mortgages the cancellation cost is set at 4% in the first 10 years, and 3% in the following.

Reduction in costs due to mortgage changes

Whether it is novation (change of contract) or subrogation (change of bank), the modifications have a cost for the consumer that until now could be very high, and more if the mortgage was recent. The reform of the mortgage law raises limits on commissions and compensation that the bank would receive in the event of a mortgage or entity change. The objective is to ensure that those who have a mortgage can easily change the interest rate "almost without costs" -according to Luis de Guindos, Minister of Economy- and can, in this way, protect themselves from a possible future rise in Euribor..

Combined sales, but not linked together

Another new feature of the new Real Estate Credit Law is that banks will not be able to offer mortgages in packs along with other products. What entities can do is present, on the one hand, the loan conditions and, on the other, the different banking products that the client can hire apart from the mortgage. It is therefore allowed that there be a reduction of the various additional articles, but it is forbidden that these are presented in mandatory acquisition packages.

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