The decision is final: Spanish mortgage lenders are now on the hook for billions more in refunds for overcharging mortgage interest payments based on illegal clauses that limit the minimum interest rate they can charge. Borrowers with mortgages in Spain taken out in the boom years could be entitled to a substantial refund.

In the past, “floor” clauses were included in many variable-rate Spanish mortgages (mostly tied to the 12-month Euribor base rate) setting a limit on the minimum interest rate the lender could charge, typically around three percent. So regardless of how low Euribor fell, mortgage borrowers with floor clauses continued to pay interest at the fixed minimum rate, despite having variable-rate mortgages.

Euribor fell off a cliff with the economic crisis, dropping from 5.38% in September 2008 to 1.26% in September 2009 (see chart), and have now been negative since February this year. When Euribor falls below 2%, where it has been for most months since March 2009, many borrowers with illegal floor clauses are paying too much.

BURIED AND INCOMPREHENSIBLE FLOOR CLAUSES

When borrowers started noticing that mortgage repayments stayed the same despite a plunge in interest rates, they began asking questions, and the scandal began to build. The problem is not that floor clauses are illegal in themselves, it’s that some lenders made no effort to explain them to borrowers, and buried them in the small print, so many borrowers did not know they had floor clauses, or did not understand them.

Back in May 2013 the Spanish Supreme Court ruled that any floor clauses that had not be adequately explained to borrowers were “abusive”, and therefore null and void, entitling borrowers to a refund for overpayment, but only going back as far as May 2013.

The time-limit was contested by consumer groups at the European level, arguing that it was inadmissible under EU law. Last June, the European Court of Justice’s (ECJ) General Advocate, Paolo Mengozzi, upheld the time-limit in a non-binding opinion arguing that it was necessary due to “macroeconomic repercussions” and “exceptional circumstances”, but on Wednesday 21st December the ECJ threw out those arguments, paving the way for reclaims with total retroactivity and no time-limit.

The Spanish banking consumer lobby group Adicae estimates that two to four million contracts with mortgage floors were signed in Spain, and borrowers could be entitled to as much as €4 billion or more back in refunds, according to the Bank of Spain. Legal experts estimate that 10,000 borrowers from the UK alone could be entitled to refunds of €15,000 on average.

DOES YOUR MORTGAGE HAVE AN ABUSIVE FLOOR CLAUSE?

Recent mortgages taken out since 2013 are unlikely to have floor clauses but loans from before that date may have them, especially loans signed in the years 2007 – 2009. If you have not noticed any decline in your mortgage payments since 2008 it is likely that your mortgage contains a floor clause. Legal experts tell me that borrowers with illegal floor clauses will typically have been overcharged by a figure starting around €1,700 a year, potentially much more.

Floor clauses only relate to variable rate mortgages, and it is often difficult to tell from your mortgage contract if you are the victim of an abusive floor clause because they tend to be buried in complex figures and terms (all in Spanish), which most foreign borrowers would struggle to understand.

HOW DO YOU RECLAIM?

Floor clauses are not illegal in themselves. The problem was that, in many cases, they were not adequately explained, and that clauses in contracts were not “transparent” or “understandable”. This means you are not entitled to automatic reimbursement just because you have a floor clauses in your mortgage agreement. You have to go to court to argue the clause was not adequately explained to get it ruled null and void. Then you can reclaim overpaid interest. That means you need a lawyer to take your case to court. See our service directory for lawyers in Spain.