Spanish mortgage lenders habitually oblige their clients to take on additional products, such as life insurance, that drive up conveyancing costs by as much as 100%, reveals a new report by María Martínez, professor of civil law at the University of Zaragoza.
According to the report, released at a conference on the real estate business organised by the Spain’s Consumer Union (UCE), the law “only requires mortgage borrowers to take our fire insurance,” but mortgage lenders are imposing other products, such as life insurance, temporary incapacity insurance, unemployment insurance, pension plans, credit cards, and direct debits, as conditions for approving a loan.
“Not only is this [additional products] not obligatory, it is against the law to oblige clients to take out such products,” says the report, which also points out that “the requirement, in many cases, of personal and other guarantees subjects consumers to excessive demands not always justified by the volume and operational risk borne by the lender.”
Imposing additional products drives up the cost of purchase and imposes unjustifiable demands on borrowers, argues the report. “Banks gets greater guarantees and higher margins from additional products, all of which have to be paid for by consumers. Furthermore, they also get the [mortgage opening] commission.”
The extra costs associated with these “bad practices” tend to double conveyancing costs for mortgage borrowers from around 10% of the property purchase price to 20%, argues the report.