Mortgage repayments during the Covid-19 crisis
Last 17th March, the Spanish government published a royal decree designed to reduce the effects of the current health crisis and to facilitate the recovery of the economy once the crisis situation has passed. In the last couple of weeks, we have received many questions regarding the possibility of delaying mortgage repayments as people feel the effects of having to close their businesses or due to the loss of rent as a consequence of people being affected by travel restrictions and in this article we will give consideration to the regulations regarding an application for a suspension of mortgage repayments.
The first and most important consideration is that the application for a postponement of mortgage repayments can only be made in those cases in which the mortgage loan was given for the acquisition of one’s permanent or habitual residence and in the event that the borrower is in a situation of “social vulnerability” as defined by article 9 of the royal decree. The same measures may also be applied to guarantors of the borrower who has received a loan for the acquisition of their permanent residence in the same conditions as those established for the actual borrower.
The legislation introduced defines what constitutes a situation of “social vulnerability” in the following manner:
a) in the event that the borrower has been made unemployed or, in the case of a businessman or person who exercises a professional activity, in the event that they suffer a substantial loss of their income or sales,
b) in the event that the total income of the members of the family unit does not exceed during the month prior to the application for the postponement;
i.- in general, 3 times the monthly Public Indicator of Income for Multiple Purposes (IPREM),
ii.- the said limit is increased by 0,1 times of the IPREM for each dependent child of the family unit (0,15 in the case of a single parent family),
iii.- the said limit is also increased by 0,1 times the IPREM for each dependent over 65 years of age that is a member of the family unit,
iv.- if any of the family members has a physical disability of more than 33% or a situation of dependency or illness that stops him/her from working, the limit will be increased to 4 times the IPREM, and
v.- in some cases the limit may be increased to 5 times the IPREM if any family member suffers from a mental incapacity or a degree of disability that exceeds 65%.
c) in the event that the amount of the mortgage repayment plus expenses and basic living costs is equal to, or exceeds, 35% of the net income received by the members of the family unit,
d) in the event that, as a consequence of the health crisis, the family unit suffers a significant alteration of its economic circumstances regarding its commitment to the cost of the repayments as defined in the point below:
2.- For the purposes of this article it is understood that;
a) A significant alteration of the economic circumstances has been produced when the commitment that the mortgage repayment represents with regard to the total family income has increased by at least 1.3
b) a substantial drop in sales has occurred when there is a drop in sales of at least 40%.
c) the term family unit is understood to comprise the borrower, the spouse (who is not legally separated from him/ her) or the registered civil partner of the borrower and the children, with independence of their age and who live in the habitual residence including those children to whom the borrower is a guardian or tutor or has a relationship with them by virtue of a family care scheme and their spouse (who is not legally separated) or registered civil partner who also lives in the home.
Those guarantors or sponsors of borrowers who find themselves in a position of social vulnerability may demand that the lender exhausts all means of recovering the repayment owned from the borrower.