The New Spanish Mortgage Law 2019: what are the latest changes?

You may have heard that there has been much litigation created around bank’s mortgage products in Spain, mainly as a result of the economic crisis that occurred within Spain in 2008. This crisis was primarily caused by the real estate market, and this was evident due to the large amount of mortgage payment defaults that were detected during the same period. For this reason, including some other factors, the old Spanish mortgage law became a controversial matter, therefore, a change of mortgage law in Spain was put in motion. The objective of this legal modification was to reduce the significant number of conflicts, which involved a revision of the relationship between moneylenders and borrowers i.e. between the banks and their clients. In the following article, we therefore elaborate on the key facts of the new Spanish mortgage law in 2019, so if you are applying for a mortgage to purchase your Spanish property or will need one at some point, then please take note!

The Change in Spanish Mortgage Law

Firstly, we introduce to you a new regulation that is going to govern the whole area of mortgage loans. It is covers what is known as the real estate credit law. You will also see it referenced as the 5/2019 Act, of the 15th march, although it actually came into vigour on the 16th June 2019. Its enactment involves, an amendment in terms of its harmonisation to the guidelines relating to mortgage lending.

So what is included in this new mortgage law? In general, the new legislation increases the legal security for clients in their dealings with banks. The following explains in which way these guidelines in mortgage practice, will come to fruition:

• Mortgage related costs are now going to be distributed in a different way. There has always been certain controversy surrounding who should pay them (in general, it was down to the clients), so with the new law it is much clearer regarding who pays what, and the costs are now allocated as follows: the ‘gestoria’, registry, notary and AJD (mortgage tax) are paid by the bank, while the valuation and opening/arrangement fee are to be paid by the client.
• There will be increased consumer protection, for example, via the bank’s obligation to provide clear and concise information, adapted to the client’s level of understanding.
• Malpractice by the banks for these financial products will be persecuted, such as introducing unfair contract terms.
• A new independent entity will be created, which will be in charge of the resolution of disputes surrounding mortgage related complaints.
• The early repayment of a mortgage will be cheaper and can only be charged for by banking entities when it is proven that mortgage contracts are causing them losses.
• To the detriment of variable rate mortgages (which the average consumer often finds more difficult to understand), clients are encouraged to take out fixed mortgages, which provide them with more security knowing, from the start, the total cost of the mortgage for which they’ve applied.
• You will be able to change your mortgage with greater ease, since, when you are looking to your mortgage, you will not be obliged to accept the equal offer from the bank with which you have your current loan, which often happened in the past.
• Early maturity clauses and repossessions can only be applied when twelve unpaid monthly payments are accumulated.
• The sale of attached products is limited, so clients are no longer forced to contract them to obtain the mortgage, although combined products can still be sold as long as the banks offer them alternative options as a comparison.
• Floor clauses have been abolished from variable rate mortgages.
• You will be able to convert, if you wish, 
multicurrency mortgages into euros.
• There will be greater control over the activities of financial intermediaries, which will favour greater transparency with the contracts that clients will sign within their mediation.

In short, the current mortgage law corrects the defects of the previous one, mainly in favour of the consumer which we are sure you, as a potential buyer will be pleased to know, and now conforms better to loan market conditions associated with today’s property in Spain.