On June 16, the Law regulating real estate credit contracts , known as the new Mortgage Law, came into force, three months after its publication in the Official State Gazette and almost three years late in the period granted to Spain to adapt to European Directive 2014/17/EU.
With the aim of increasing legal protection and transparency in this sector, the regulations introduce important changes that directly affect credit institutions and consumers. Thus, according to the portal iAhorro.com , from now on, signing a mortgage will be between 500 and 1,000 euros cheaper for the borrower .
If you are thinking of applying for financing to purchase a home, at Hipotecas.com we explain the most significant changes in the new legislation.
Mortgage expenses
The most notable change in the new Mortgage Law is undoubtedly the redistribution of the costs of processing mortgage loans. Until now, it was the client who had to assume the cost of formalizing a mortgage, but with the legislative change, the vast majority of these costs fall on the lending institutions.
Specifically, the bank will have to pay the bills for the agency, the notary, the registry and also the Stamp Duty . For their part, consumers will be responsible for paying for the appraisal of the property and the notarized copies when they request them .
Tied sales
What happens with life insurance, home insurance, pension plans, cards, etc. that banks used to include when granting loans? With the new Mortgage Law, so-called linked sales are prohibited in general, that is, the approval or not of a loan can never be subject to the contracting of these products, something that we already did at Hipotecas.com before the law.
However, the rule establishes a series of exceptions to this prohibition:
- The competent authority may authorise specific tied sales practices where the lender demonstrates that these products or categories of products offered, on similar terms and conditions to each other and not presented separately, entail a clear benefit to borrowers, taking due account of the availability and prices of the relevant products offered on the market.
- Institutions may also require the consumer to take out an insurance policy to guarantee compliance with the obligations of the loan contract , as well as to take out damage insurance for the property that is the subject of the mortgage and any other insurance provided for in the mortgage market regulations, although, in this case, the lender will have to accept alternative policies that offer conditions and benefits equivalent to those it has proposed to the borrower, both in the initial subscription and in subsequent renewals, without being able to charge any commission or expense for the analysis of these alternative policies presented by the client.
- The entity may also link the loan to the borrower, his/her spouse, common-law partner or a relative up to the second degree of consanguinity or affinity contracting certain financial products established by order of the person in charge of the Ministry of Economy and Business, provided that it serves as operational support or guarantee for the operations of a loan and that the debtor and the guarantors receive precise and detailed information.
Commissions
As for commissions , there are also significant changes compared to the previous situation, including:
- Although financial institutions may establish opening fees , the new Mortgage Law establishes that these will only be accrued once and will include the costs of study, processing or granting as long as these services have actually been provided.
- On the other hand, the amortization commissions , partial or total, are also limited in the following terms:
- In the case of variable mortgages, two situations are established:
- Amortization in the first three years: a commission may be established that may not exceed the amount of the financial loss that the lender may suffer and with a maximum limit of 0.25% of the capital repaid early.
- Amortization in the first five years: the same formula applies, although the maximum applicable rate is reduced to 0.15%.
- For fixed-rate mortgages, the amount will be set:
- During the first 10 years - or from the day the fixed rate becomes applicable - the commission may not exceed the amount of the financial loss that the lender may suffer, with a maximum limit of 2%.
- From 10 years of the loan until the end of its life, the conditions are the same as in the previous section with the particularity that the maximum is set at 1.5%.
- In the case of variable mortgages, two situations are established:
- For changes from a variable to a fixed rate , both due to the novation of the interest rate by the holder, or due to the subrogation of a third party in the rights of the creditor, the commission may not exceed the financial loss that the lender could suffer, up to a limit of 0.15% of the capital repaid in advance during the first 3 years of the contract. After these first 3 years of validity, the lender may not demand compensation or any commission in the event of novation of the applicable interest rate or subrogation of the creditor in which the application of a fixed interest rate is agreed.
And how is this financial loss of the lender quantified? It is a matter of determining whether the current outstanding capital would be worth more or not than the sum of the installments that the entity will receive in the future if the amortization, novation or subrogation does not take place. Thus, article 8 of the Mortgage Credit Law stipulates that it will be calculated proportionally to the repaid capital, by negative difference between the outstanding capital at the time of early repayment and the current market value of the loan. Thus, if the updated value of the installments is higher than the outstanding capital, that will be the loss of the financial entity.
Financial loss = Outstanding capital – Present value of future installments.
Foreclosure
Another new feature of the new Mortgage Law is the tightening of the conditions for initiating foreclosure proceedings by financial institutions in the event of non-payment.
What requirements does current legislation establish? If the mortgage is in the first half of its life, the default must affect 12 installments or the equivalent of 3% of the principal . If the credit is in the second half of its life, the limits are increased to 15 installments or 7% of the principal .
In addition, as a reinforcement, the lender will have to have requested the payment due and granted the borrower at least one month to pay the debt.
Training and information
In addition, to ensure transparency and legal security in the market, the new Mortgage Law strengthens the communication process between consumers and financial institutions , increasing the participation of notaries.
What are the obligations for the bank ?
- The old FIPER is replaced by two documents - the European Standardised Information Sheet (FEIN) and the Standardised Warning Sheet (FiAE) -, which reflect the conditions of the loan in a more exhaustive manner and which must be delivered by the financial institution in the pre-contractual phase and always at least 10 days before signing the mortgage.
- The concessionaires will also have to upload the conditions they offer to users to a digital platform , so that notaries can access all the data on the mortgage when informing the user about the conditions and their implications, without the need for a representative of the financial institution to be present.
- Banking professionals will also have to pass certain tests to prove their ability to advise clients on mortgage products.
As for the consumer, the process for formalizing a mortgage also includes new phases. Thus, citizens have to go to the notary on two occasions : the first, during the 10 days prior to signing the loan, to certify before the public notary that they know the content of the contract . If they do, the notarial act is drawn up and the second meeting takes place at the notary's office to sign - now yes - the deeds of sale and the mortgage.