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Financial Dictionary - The Mortgage Law

The Mortgage Law

Mortgage loans are currently regulated by the Mortgage law (or real estate lending law). This law has been in force since 16 June 2019. It was introduced in response to the European Union's intention to protect consumers, increase transparency and distribute costs between the bank and the customer.
  • Protecting consumers and increasing transparency. This Law obliges banks to provide buyers with several information documents, and obliges buyers to go to a notary before signing the contract, for free advice and to take a test. It also protects customers from abusive clauses, strikes out clauses that do not comply with the regulations, and provides for the processing of complaints and claims through a specialist body.
  • Distribution of costs. This is the most significant change, as it establishes a new distribution of the costs of deeds and registration. As a result, the bank pays the management, registry and notary costs, the stamp duty (IAJD) and for its copy of the deed. The consumer pays for the appraisal and their copy of the deed. This is better for consumers than the situation under the previous law.
  • Retroactivity. This Law is not retroactive in general, as it applies to mortgages that are arranged after its entry into force. However, it does have two retroactive articles: the first of these makes the conversion from variable to fixed rates cheaper, establishing a maximum fee of 0.15%, applicable if it is changed within the first three years of the mortgage.

Can you change banks?

This is another of important change under this law, under which the buyer is no longer required to accept a counteroffer from the initial entity to match or improve the conditions offered by a new entity. In summary, we can choose the bank we prefer.

What about early repayment?

The new law sets a lower fee, which the bank can only charge if it suffers a loss as a result. The bank may also agree with the customer a period of one month for notification by the customer of their intention to repay the mortgage in advance. From that moment, the bank must provide the information required in three business days.

Mortgage foreclosure: Non-payment and seizures

This is perhaps the most important new development, as it establishes stricter requirements when requesting seizure after repeated non-payment. The arrears now have to exceed 3% of the principal lent over 12 months in the first half of the loan term, or 7% for 15 months in the second half of the loan term.

Linked and combined products

The new law does not allow the sale of linked insurance, pension plans and credit cards by the bank. However, it does allow the bank to reduce its interest rate if the customer purchases such products. The difference between linked and combined products is that the former are arranged as packages, while the latter are sold separately, with the customer choosing which they wish to buy.

Mortgage floors

The new law prohibits banks from applying minimum interest rates on variable-rate mortgages: there are no more floor clauses, or 0% minimum rates if the Euribor is negative. However, it does set a minimum rate of 0% for all mortgages by default.

Control of real estate brokers

These financial intermediaries will be entered in a register held by the Banco de España and the autonomous communities. They will also be supervised. They must not have been declared bankrupt or have a criminal record, and their fees must be included in the calculation of the APR.

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