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SPANISH MORTGAGE LAW – WHAT’S NEW

The new Spanish mortgage law has been approved and came into effect last month. But which are the biggest changes and how will it affect mortgages in Spain? In this blog we will cover the 4 major changes of the new legislation.

MORTGAGE COSTS

The most discussed effect of the new law in the media is mortgage related costs and who should pay these. In the past customers were supporting most of the costs, but the law stated that the bank is responsible for most of the expenses, including administrative agency’s fees, stamp duty, the notary and taxes.

INCREASED CONSUMER PROTECTION

The primary reason of the changes in the legislation was to increase consumer protection. This will be achieved through a greater level of information for the future borrower. The bank must deliver the mortgage’s draft to the client 10 days before the agreed signing date. This way, the notary can ensure that the mortgage loan complies with current legislation and that the client understands the loan’s contract.

INCENTIVE TO CONVERT TO A FIXED RATE

The new law will make it cheaper to convert a variable rate mortgage into a fixed rate. It’s a risky situation when there are many variable rate mortgages in existence, due to the simple fact that the monthly payments can increase significantly within the term of the mortgage. The fact that a client can afford now the mortgage, doesn’t guarantee that in the future the payments will not be an issue, applying for a mortgage with a fixed rate is safer.

THE EVICTION PROCESS IS DELAYED

This is possibly the change with the most impact as the new law establishes stricter requirement before the bank repossess a property. More concretely, the bank can’t initiate the process of repossession until the following limits have been reached:

  • During the first half of the mortgage term: the delayed payments add up to 3% of the capital granted or an equivalent of 12 unpaid monthly instalments.
  • During the second half of the mortgage term: the delayed payments add up to 7% of the capital granted or an equivalent of 15 unpaid monthly instalments.