What is the Mortgage Law (Ley Hipotecaria)?

Mortgage loans are currently governed by the Mortgage Law (or real estate lending law). This law has been in force since 16 June 2019. It was introduced as part of the European Union's ongoing efforts to protect consumers, increase transparency and share costs between the bank and the customer.

This Law requires banks to provide buyers with several information documents, and requires buyers to approach a notary before signing for free advice and to take a test. It also protects customers from abusive clauses, strikes out clauses that breach applicable law and regulations, and sets up a specialist body tasked with handling complaints and claims.

As for cost sharing, the Law establishes a new apportionment of expenses when it comes to signing deeds and filing documents. The bank must meet all management, registry and notary costs, as well as stamp duty (known as IAJD) and the cost of obtaining its copy of the deed. Meanwhile, the consumer pays for the property valuation and for their copy of the deed, making it a better deal for them when compared with the previous law.

For the most part, this Law does not take retroactive effect, as it applies to mortgages that are arranged after its entry into force. However, it does contain two retroactive articles:

the first of these makes the conversion from variable to fixed rates cheaper, establishing a maximum fee of 0.15% if the rate is changed within the first three years of the mortgage. The second retroactive article determines when foreclosure will take place in the event of non-payment.

Mortgage and change of bank

Another important change ushered in by this Law is that the buyer is no longer required to accept a counteroffer received from the initial bank that matches or improves upon the terms and conditions offered by a new prospective bank. In a nutshell, we can now choose the bank we want.

Early repayment of the mortgage

The new Law sets a lower fee, which the bank can only charge if it suffers a loss as a result of the early repayment. The bank and the customer may also agree upon a one-month notice period if the latter plans to prepay the mortgage. As of that moment, the bank must provide the necessary information within three business days.

Mortgage foreclosure: non-payment and seizure of the property

The new Law imposes stricter requirements for requesting foreclosure following successive non-payments. The default must now exceed 3% of the capital lent and last at least 12 months during the first half of the loan term; or 7% for at least 15 months over the second half of the term.

Linked and/or combi products in mortgages

The new Law does not allow banks to insist that the customer arrange linked insurance products, pension plans or credit cards. It does, however, allow the bank to lower the interest rate if the client chooses to arrange such products. The difference between linked and combi products is that the former are arranged as packages, while the latter are sold separately, with the customer choosing which they wish to arrange or buy.

Mortgage interest rate floors

The new Law forbids banks from applying minimum interest rates on variable-rate mortgages: floor clauses are a thing of the past, as are 0% minimum Euribor rates if the benchmark is in negative territory. However, it does set a minimum rate of 0% for all mortgages by default.