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By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
21st of November 2018
Over the course of the next weeks a new Mortgage Act will be enacted by Congress. In the wake of the property bubble collapse, which has resulted in hundreds of thousands of bank repossessions and a deluge of litigation against lenders due to the widespread inclusion of abusive clauses in mortgage loans, a new bill is going to be passed that is going to alter significantly how mortgages work in Spain going forward.
The urgency on ratifying this new law comes about because Spain is already two years behind passing it, and the European Commission is threatening to levy fines of up to €100,000 per day if Spain does not pass the bill before the end of this year.
The draft bill is in its last stages, so few changes are to be expected. I have collated below the major highlights worth noting:
- Floor clauses (collar clauses) will be completely removed in all mortgage loans.
- Repossession procedures will now only take place when a borrower falls in arrears 12 quotas or 3% of the capital. In other words, as these quotas are normally repaid on a monthly basis, lenders will have to wait a full year before they are able to instigate a repossession procedure against a borrower. Up until recently lenders had to wait 3 months before they could repossess. Moreover, this 3-month rule was a recent change in itself, as lenders post-crash could execute a repossession with only one quota in arrears, which was simply lopsided.
This new bill is indeed very welcome for a number of reasons.
The new law will protect families, bolstering consumer rights, should they fall into arrears allowing them more time to get up on their feet and service their mortgage repayments. Over the last decade in Spain we have gone from lenders having the enormous power of instigating a repossession procedure on a borrower missing a single quota to lenders having to wait a full year before filing a repossession. In the aftermath of the property bubble collapse, hundreds of thousands of families lost their homes.
It will also bolster credit. Lenders, beset by hundreds of thousands of litigation procedures under way, are reluctant to lend, which severely impacts the credit supply. This new law will clear the path and hopefully alleviate the problem contributing to open up the credit supply which is fundamental, as credit underpins any major property recovery. Without credit, there can be no market recovery.
All in all, a good law.
I would like to end this post on a positive note, thinking that we have all learnt a collective lesson from the property bubble. Unfortunately, history is a stubborn mistress and teaches us that we always trip over the same stone, more than once.
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Mortgage related articles
- House Hunting in Spain – Interview with The New York Times. June 2015
- Resurgent Spain: Málaga Sees Strong Sales – Interview with Mansion Global (The Wall Street Journal). December 2015
- Buying Property in Spain from a Private Seller (Resale Property) – 21st of February 2017
- Buying Property in Spain from a developer (Off-Plan Property) – 8th March 2017
- How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017
- Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
- Recap of Legal Actions in Spain against Banks & Others– 21st March 2017
- Have you sold property at a loss in Spain? You can now apply for a tax refund – 8th November 2017
- 8 Tips on Buying Off-Plan in Spain – 8th June 2018
- Mortgages: fixed or variable rate? – 11th June 2018
- 100% mortgages strike back! – 21st August 2018
- Banks to pay Stamp Duty on mortgage loans (again) – 9th November 2018
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