Spanish Mortgages: Understanding the New Credit Finance Legislation

The new mortgage laws in Spain are finally in effect, after years of delay and speculation. These legislation changes are considered good news for home buyers in Spain as they offer increased consumer protection, make it easier and cheaper to repay your mortgage early, and finally regulate multi-currency mortgages. Great news for Brits looking for a Spanish mortgage!

As with any updated legislation, Spain’s new credit finance legislation is fairly extensive. We’ve broken this down to offer a high-level overview of the five most important points from the document and how they are likely to affect you.

With that in mind, here’s everything you need to know to help you better understand the new credit finance legislation:

The Payment of Mortgage Related Costs

One of the highest profile and most publicised changes of the new law is the impact that it will have on the costs involved in securing a mortage, and who should pay these. The new law means that the mortgage tax will be allocated slightly differently.

The bank will now be responsible for paying: The “gestoria”, the notary, the registry and the AJD (commonly known as the mortgage tax).  Our guide to buying in Spain will outline the role of the notary, registry and AJD in more detail.

The client will only be responsible for paying: the cost of the property valuation and the opening/arrangement fee.

Before the new credit finance legislation was introduced, all of these fees were the responsibility of the potential Spanish homeowner, so this is very good news for anyone hoping to buy a Spanish property.

Repaying Your Mortgage Early

If you are in the fortunate position to be able to pay back your mortgage early then this next change is also good news for you. You can now only be charged a fee for repaying your mortgage early if doing so would cause your bank to make a loss.

Your bank will also no longer be able to delay your early repayment option for an extended period of time. The most time a bank can demand that you give them before you stop your mortgage agreement with them is one month, following which the banks will have three working days to assess the demand and process your repayment.

Put simply, if you want to repay your mortgage early and you have the money to do so then you can, without any financial penalty.

Making Repossession Harder

Under the new legislation, the rules that allow a bank to repossess a property will be much, much stricter.  In fact, the following clauses must be met before the bank can even begin the repossession process:
If you are in the first half of your mortgage term you must have missed payments for  3% of the captial granted by the bank (equal to 12 missed mortgage payments)
If you are in the second half of your mortgage term you must have missed payments for  7% of the captial granted by the bank (equal to 15 missed mortgage payments)

Improved Consumer Protection

Your consumer rights are important, particularly when purchasing something as financially significant as a property. The new credit finance legislation acknowledges this – in fact, consumer protection is the main reason the legislation has been introduced.

The bank now has to provide potential mortgage borrowers with a  FEIN document (Ficha Europea de Informacion Normalizada, or European Standardised Information Sheet). This document is designed to give borrowers an overview of the terms and conditions of the mortgage credit on offer.

The purpose of this document is to keep consumers as informed as possible, and make it easier to make like for like comparisions between several lenders. Once it is issued, the FEIN document is legally binding for 10 days. At the same time the bank is now also legally obliged to provide a FAE (Ficha de Advertencias Estandarizadas), which explained the terms and clauses of the contract in language the borrower will understand. 

Potential mortgage owners will also be offered free financial counselling and have to pass a financial aptitude test in front of their notary before that notary will legally be able to sign off on their mortgage and authorise the deeds. The aim here is to ensure lenders are responsible, and borrowers understand the commitment involved in securing a mortgage.

Multi-Currency Mortgages Will Be Regulated

This change is very welcome by Spanish homebuyers from the UK. Clients who are taking out multi-currency mortgages will now have the right to switch their currency terms to euros whenever they wish. The bank also legally have to inform you whether the value of your debt is higher in euros or your other currency (probably GBP) so that you can make informed choices.

The FEIN document detailed above even has to include an example of how the mortgage repayment costs could increase in the case that the exchange rate suffers a 20% fluctuation. This has the potential to save overseas clients significant amounts of money, and shows how important this market is to the Spanish property industry.

Do you feel equipped to take the plunge and invest in a Spanish property of your own? There’s no better time! We can help with your Spanish property search: why not get in touch with us today?