Government changes law to make banks pay mortgage set-up taxes

After the fiasco of the Spanish Supreme Court’s blunderings over who should pay Stamp Duty on new mortgages the Government has rushed through a change in the law to make banks pay the tax from Monday.

Earlier this week the Supreme Court came to a definitive conclusion that borrowers must pay the Stamp Duty tax on new mortgages, known as Actos Jurídicos Documentados (AJD), after a series of contradictory rulings and decisions that annoyed everyone involved. You can read what a mess the highest legal body in the land made of this question in my recent article the Spanish Supreme Court finally decides that borrowers must pay mortgage taxes in definitive judgement that leaves the court in disrepute.

With left-wing politicians accusing the Supreme Court of siding with the banking sector against the people, the Government has rushed through by Royal Decree a change to the law explicitly stating that banks should pay this tax from now on. The change was made yesterday, will come into force on Saturday, and will be applied to all new mortgages signed on Monday onwards.

Experts warn that banks will simply pass on the cost to borrowers in higher mortgage rates or other charges, but the Government denies this will happen, and says it will take steps to prevent it without providing any details

The judges accept they made a mess of things, but point out the real problem was the law’s lack of clarity. The amended law now makes it very clear who has to pay, which the original law should have done from the very start 23 years ago. At the least we now know for sure that banks, not borrowers, will pay the Stamp Duty tax on new Spanish mortgages, though it is far from clear that borrowers will be any better off in the long run. In the short run, however, this change removes a cloud of uncertainty hanging over the mortgage market, which should be good for the housing  market. And banks must be happy, as there is now no risk of them having to pay back borrowers for Stamp Duty on mortgages signed in the past.

About Mark Stücklin

Mark Stücklin is a Barcelona-based Spanish property market analyst, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008).

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