New mortgage laws protect consumers
By Armin Gutschick & Anja Sämann-Gutschick
Since the summer of 2019, the process of real estate financing in Spain has changed in favour of consumers. On the basis of a European directive, a new mortgage law has been implemented in Spain which aims to protect consumers. The law is only applicable to natural persons (individual borrowers or guarantors) and it does not apply to ‘legal persons’ (companies).
Under this law the credit institutions now bear all costs that arise in connection with mortgage financing. This applies to the notary and land registry fees. It also applies to the 1.5% mortgage tax, also known as the stamp tax (“AJD”), however this tax had already been imposed on the banks at the end of 2018 by a statutory ordinance. Some banks continue to charge customers a commitment fee (comisión de apertura), but the customers have the option of renegotiating the amount of this fee.The terms of the contract, in particular the effective annual interest rate (TAE = Tasa Anual Equivalente) must be transparently communicated to the customer.
The bank is obliged to send the customer a binding offer (“oferta vinculante”) in the form of a “FEIN” (“Ficha Europea de Información Normalizada”), at least ten days before the signing of the mortgage loan. Furthermore, the most important clauses, in addition to the interest and repayment plan, must be summarized for the customer, and the costs arising from setting up the mortgage (opening commission, value report) must be clearly shown.
The customer has the right to seek advice and clarification from an independent notary. One day before the filing of the mortgage there is a preliminary meeting in which the notary creates a protocol (“acta de transparencia”) based on a standard questionnaire. The notary is obliged to provide the customer with comprehensive information, and to ensure that he/she has understood all of the clauses. If the notary has legitimate doubts, he can refuse to issue the protocol, and the mortgage will not be ordered. All consumers involved in the mortgage have the obligation to attend the notarial meeting. This includes the borrower, the surety and any other signatories (for instance if there is a guarantor who only guarantees a property).
The granting of the loan may be made subject to the condition that the customer purchases additional products from the bank (examples include life insurance, or a contract for an alarm system). On the other hand, the bank can issue interest credits to the customers who decide to purchase such products from the bank.
It should be noted that the role of the mortgage broker is precisely defined by the new law, including that the broker must be registered in the broker register at the Spanish Central Bank. To do this an agent must take out professional liability insurance, otherwise the entry in the Registry for insurance brokers is not valid. In addition to the mortgage broker, all other authorized persons (such as bank advisors) can be held liable for non-compliance with the obligations to provide information, or for improper handling of personal data.Enforcement of the mortgage may only be initiated if the unpaid instalments have exceeded 3% of the loan agreement, or if twelve monthly instalments have not been paid (previously it was two!).
The original financing bank may not charge any fees if the loan is taken over by another bank, in the case where the borrower may have found better terms.
As we have seen, the consumer has many more rights than before under this new legal framework. However, the procedures are rather complex, so it is best to have the guidance of professional legal help.