Cabinet gives green light for new mortgage law bill
The Ley de Crédito Inmobiliario, which now goes to Congress to be debated, is expected to be approved next spring
By Suzan Davenport MARIANO Rajoy’s cabinet on Friday approved a bill that aims to reduce costs generated by changes clients make to mortgages and create more transparent transactions with Spain’s banks, after the floorclause fiasco which saw thousands of clients unknowingly tied into above-market mortgage rates.
The bill will lower early cancellation fees for variable-rate mortgages, eliminating them altogether after five years, said minister for the economy Luis de Guindos on Friday, although this part of the proposal will only apply to mortgages taken out after the bill becomes law.
For clients who already have mortgages, converting a variable-rate mortgage to a fixedrate mortgage will be commission free after the first three years and there will also be a reduction in notary and land registry costs.
In addition, the new law will stop banks forcing clients to accept products linked to mortgages, such as life insurance, and instead lenders will have to offer clients a choice, with or without associated products, and explain clearly the different costs.
The new law would also establish that in the seven days prior to signing a mortgage the lender must supply clients with detailed documents on the loan they are to sign, which they can then take to the notary for free information about what they are signing and of the existence of any opaque clauses.
This process would then be written into the mortgage deed.
Once the law is passed it will also increase the time limit before a bank forecloses on a defaulted mortgage from the current three months of missed payments to nine months or the equivalent of two per cent of the borrowed capital, during the first half of the loan’s life.
During the second half of the mortgage the percentage would rise to 4% or to 12 months unpaid.
Another of the points covered in the bill is the possibility of clients applying for, at any point during a loan, a change in the currency in which a foreign currency mortgage is repaid, either to euros or to the currency the client earns.
De Guindos highlighted that in Spain “more than 90% of mortgages are currently variable-rate” and that interest rates are “extraordinarily low and won’t stay that way” over the next 20 to 25 years, the length of an average mortgage.
Minister for economy Luis de Guindos after last Friday's cabinet meeting