Who pays mortgage set-up taxes? Spanish mortgage market plunged into confusion by the Supreme Court


The new ruling by the Spanish Supreme Court on mortgage expenses (STS105 / 2018) declares that it is the bank and not the borrower who must pay the taxes involved in setting up a mortgage;  and declares null the Art.68 of Tax Regulation on Transfer and Stamp Duty Tax (IAJD), a resolution that is not free of controversy.

Not even 24 hours passed after the Supreme Court ruling overturning Jurisprudence before Mr. Luis María Díez-Picazo, President of the Third Chamber of the Supreme Court Contentious-Administrative Division, issued a statement communicating that as this ruling means a radical turn on the jurisprudential criterion with an enormous economic and social impact, and putting on hold any court appeal on this subject until further revision by the Court’s plenary.

As a result the Supreme Court will decide next November 5, through a cassation judgement,  if the jurisprudential reversal is real or if it was only a mirage for mortgage borrowers. If the decision goes against consumers, as happened in the mortgage floor clause sentence, this matter will be taken to the European Union Court of Justice (CJEU).

The Supreme Court is the final court for appealing a sentence, and therefore, the maximum responsible for the unity of legislation interpretation in Spain. So far, however, the body has issued contradictory judgements. At the beginning of this year,  the civil division of Supreme Court clearly ruled that the tax on mortgages should be paid by consumers and not banks. However, on the 18th of October the Contentious-Administrative division pronounced the other way, that banks should pay. So two divisions of different jurisdictions of the Supreme Court (civil and administrative) have issued conflicting sentences producing a legal mess that may have social and economic consequences, as well as affecting the acquisition costs of future mortgages.

As a result of the latest ruling almost six billion euros were wiped off the value of the banks listed on Spain’s Ibex 35 stock exchange. The banking entities warn of an increase in the price of mortgages for borrowers if finally the Supreme Court rules in favor of  consumers. The average tax payment, according to the Organization of Consumers and Users (OCU), for a reference loan of € 150,000 is between € 1,000 and € 4,000 depending on the autonomous region where it is contracted and the year in which the mortgage was signed .

The outlook is uncertain and we will have to wait for the resolution next November 5th on who pays the tax. If the Supreme Court issues a favorable ruling for consumers, it will open a new door for them to claim the tax paid on their mortgages, along with the other expenses. On the other hand, if the Supreme court issues a favorable ruling for banks, consumers would still have the possibility to continue fighting, and wait for the decision of the European Union Court of Justice.

Consequently, the expected ruling of the Supreme Court is not free of controversy for any of the interested parties. Consumers are currently in a situation of legal uncertainty as far as the tax claim of mortgages is concerned. We will have to wait for the vote of the plenary on November 5 to shed some light on this issue.

Clara I. Gómez Sevilla

Lawyer – Abogada

Del Canto Chambers

* This article has been written by a third party not owned or controlled by Spanish Property Insight (SPI).
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