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NEW MORTGAGE ACT IN SPAIN

The new mortgage act

On Monday 17th June 2019, a new Mortgage Act (Law 5/2019 of 15th of March) came into force in Spain

With the introduction of the new mortgage act, it has raised a few questions, this article aims to address most questions people may have in relation to the change.

1) To which mortgage loans is the law applicable?

To any mortgage loan granted after 16th of June 2019 applied for by a physical person for the purchase of a residential property. It also can be applicable to Deeds signed after the said date that modify the terms of a former Deed of Mortgage.

 

2) Who is finally paying the costs related to the mortgage?

The bank has to pay the Stamp Duty (since 10.11.2018) and now also Notary’s fees, Land Registry fees and Law Agent fees known as “gestoria”.

The purchaser / borrower has to pay the fees for the valuation of the property and the copies of the Notarial Deed of Mortgage.

 

3) What happens with the floor clause?

The new legislation strictly prohibits the insertion in the Deed of Mortgage of a clause with a minimum interest rate thus the floor clause has been banned.

 

4) Are there any changes on the commissions for repayment before maturity?

Yes, these have been reduced.

For mortgages at a variable interest rate  the banks can charge a 0,15% commission on the amount to be repaid during the  first five years of the loan and 0,25% on the amount repaid in the first three years of the loan. After that term no commission can be charged.

For mortgages at a fixed rated  the banks can charge 2% on the amount  to be repaid during the first 10 years and 1,5% on the amount to repaid during  the  rest of the terms .

 

5) What happens if I cannot pay the mortgage loan?

You will have a longer term to avoid the repossession of the property by the bank.

The procedures to repossess a property can only be initiated   by the bank in the following cases:

  1. During the first half of the loan if the borrower has not paid 12 monthly installments or owes more than 3% of the capital of the loan.
  2. During the first half of the loan if the borrower has not paid 15 monthly installments or owes more than 7% of the capital of the loan.

 

6) How much interest would I have to pay if payment of the installments is not made on the due dates?

The new legislation’s limits the rate of interest for delay in payment to a maximum of 3 points above the normal interest rate applied to the mortgage.

 

7)  Can I change my mortgage loan from a variable rate to a fixed one?

Yes, the new law legislation will make it cheaper to convert a variable rate mortgage into a fixed rate the maximum charge in this case will be 0.15% and will only be applicable if the change happens within the first three years of the term of the mortgage

 

8) Do I have to subscribe insurance policies and other products with the bank that is granting the mortgage?

No, in principle the banks cannot longer force the client to contract other products to obtain the mortgage (home insurance, life covers, credit cards etc.)  However they are allowed to offer a lower interest rate in return for clients contracting various services of the bank. They can request insurance policies but the borrower can subscribe with any company.

 

9) Will I have more information about the mortgage loan and possible abusive mortgage clauses?

 In principle the reason for the new legislation is to increase the protection of the consumer by providing a greater level of information of the loan.

The bank has to provide the future client with the form called FEIN (Ficha Europea de Informacion Normalizada, or European Standardized Information Sheet).

This standardized document is designed to give the borrower an overview of the terms and conditions of the mortgage loan. Also the bank has to provide the client with the FAE (Ficha de Advertencias Estandarizadas), where the most relevant clauses and elements will be generically explained, and also with a copy of the loan contract.

If the mortgage is at a variable rate, the client will also receive a separate document outlining the effect on installments in various scenarios.

The bank has to remit these documents to the Notary’s office at least 10 days before the date of the signing of the Deed of Mortgage and the borrower will have to visit the Notary who will give free advice   on the clauses and mortgage terms.

The borrower will have to pass a test to confirm to have understood the terms and Notary will have to   prepare a Deed confirming that the documents have been received and understood by the borrower. Only after this on a second visit the Deed of Mortgage can be signed by the client.

 

RBA Rafael

Rafael Berdaguer
Lawyer within the firm
Rafael Berdaguer Abogados based in Marbella, Spain.
www.berdaguerabogados.com
Copyright © 2016 Rafael Berdaguer Abogados All Rights Reserved

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Government forces Banks to pay mortgage tax

Government force banks to pay mortgage tax

Government moves fast to force Banks to pay mortgage tax after tax ruling

A most unusual event has happened by the Government; a Royal decree has been passed after the Supreme Court said the client should pay the tax.

The government has responded fast after the Supreme Court controversially ruled this month that customers must continue to pay the mortgage-loan notary tax (AJD).

As consumer groups slammed the decision, Prime Minister Pedro Sánchez promised swift action.

Within the same week the cabinet had passed a royal decree forcing banks to pay the fee which was due to come in to force 10th November 2018.

Treasury minister Maria Jesús Montero said the government would be vigilant to ensure the banks did not pass on the charge to the customer when setting up loans.

In a move to silence a growing public outcry and gain political advantage, the Prime Minister, Pedro Sánchez, held a hurriedly arranged press conference to announce that the government would change the law to force banks to pay a tax on mortgage loan transaction paperwork.

A royal decree to that effect was approved at a cabinet meeting on Thursday 8th November 2018 (and the law change was due to be published in the official state bulletin (BOE), Friday, coming into force on Saturday.

The announcement came less than 24 hours after a meeting of Supreme Court judges in Madrid had narrowly voted to rule that it should be the customers taking out a mortgage who should continue to pay the increasingly controversial charge.

The widespread discontent over the tax, known as the Impuesto de Actos Jurídicos Documentados, has grown from nowhere over the last few weeks.

The fee is levied on a broad range of documents processed by a notary, not just mortgage papers, and is a variable percentage charged depending on the money mentioned in the loan paperwork.

Up to now banks have been charging their customers the tax, which varies by region. Experts say it can be between 1,000 and 4,000 euros on a typical mortgage.

Court finds against banks first

A Supreme Court ruling was published  in October 2018 which said that, as the bank was the party in the deal asking for the documents of the loan to be registered, and then it had to be the bank that paid for the tax.

The minute that first judgment was announced on 18 October, bank shares fell amid fears that refunds would be due on existing mortgages as well.

Dramatic backtracking

However, with signs of internal disagreements at the highest level of the Supreme Court, an unprecedented decision was taken to summon all the judges responsible for hearing cases linked to the public administration to meet on Monday, 5 November, to debate and then vote on whether their colleague’s decision should stand or not.

By the time the judges’ meeting arrived, public interest had grown to such an extent, with claims that the judges were trying to protect the banks’ interests, which no political party had dared to show support for the banks continuing to pay.

The judges’ meeting went on all of Tuesday as well. And when the final vote came it was 15 in favour and 13 against the customer continuing to pay.

Analysts said that had the decision gone against the banks and been retrospective, the banks stood to lose up to 16 billion euros.

Consumer rights’ group Facua said the verdict was “absolutely disgusting”, as the debate swung from the courts to the politicians.

Government steps in

By mid morning on Wednesday, Pedro Sánchez had his response ready. “The government respects the independence of the Judiciary but as the Executive we cannot avoid feeling sorry about this situation,” he said.

 

Malaga is one of the provinces where mortgages take up the highest share of income.

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Articles Buying a property

Buying a Property In Spain

vendida

This article is aimed to give you tips on buying a property in Spain, so helping you to avoid the possible pitfalls.

Preliminary Steps for buying a property in Spain

Once you have found your ideal property a small reservation fee will be required in the region of 1.000 to 6.000 Euros, which is given to the Real Estate Agent to take the property off the market.

However, as a “caveat emptor” no further monies should be given to any person other than a Lawyer as deposit to be held until a prior inspection of the Title and searches have been conducted which show that the property is registered in the name of the Seller free from any charges and encumbrances and without any planning issues.

To avoid any surprises when it comes to a New Development property, as your lawyer we will carry out all the necessary searches.

We will also recommend that we carry out a survey of the property if it is more that 10 years old, or if it is in disrepair that may lead to questions that there may be structural defects or the installations may not work properly.

The Builder of a property in Spain is liable for any structural defects on the property which occur within ten years from the issue of the Certificate of Completion of Works from the Architect.

As from 6th May 2000, the developer must have an insurance policy to cover any structural defect within the said 10 year period.

This gives additional protection to the buyer, who will benefit on taking out title to the property, as the insurance company will require that all the construction works are supervised by a quality control company.

However, after the expiry of the said period, any remedy from the builder will be nonexistent and therefore rectification of any of these potential problems can only be sought from the Seller.

So in case of old properties, the Survey is very important before you the buyer completes the transaction.

The Private Contract

Once the searches have been conducted and the outcome is satisfactory, we will negotiate the terms of the contract with the Seller or his Lawyer.

There are different types of private contracts to be signed at this stage to secure the purchase of the property and take it off the market.

For example deposit contract, contract of purchase and sale, option contract, etc, whereby the purchaser pays a deposit, normally 10% when the vendor agrees to sell the property.

The completion of the transaction is fixed within a particular time scale, usually four weeks when the balance of the purchase is paid and the Title Deeds of the Property is executed and signed by the parties in the presence of a Public Notary.

The choice of the type of contract is something to be assessed by us your Lawyer taking into account your circumstances and the terms of the negotiation with the Lawyer of the Seller.

Please note that not all private contracts will lead to the same consequences as for instance sometimes the Seller may pull out of the transaction paying compensation.

This is usually double the deposit paid to the Purchaser who may find out that although he may obtain certain economic compensation, this is not what he wanted as he was interested in acquiring a particular property on which he has paid a deposit.

If the Purchaser fails to complete the contract on the agreed completion date, the deposit or option price paid shall be forfeited.

Purchase of Property under construction

When purchasing a property off-plan or under construction an obvious risk is added to the transaction, i.e. that for some reason the property is not started or once commenced is not delivered on the agreed date.

In order to protect the prospective purchaser of any of these eventualities the Lawyer should demand a bank bond or an insurance cover from the developer.

Whereby any amounts handed over by the purchaser plus interest shall be returned to him should the property not be started on a certain date or same is not completed on the agreed date.

In these cases the buyer can rescind the contract and execute the Bank Bond or Insurance Cover in order to obtain his money back plus interest.

The specifications and plans of the property must be agreed and attached to the contract.

If the property is within a Complex, another plan of the Common elements where the gardens and pool must be shown should be attached to the contract.

Completion Title

On the agreed completion date the Title Deeds or Escritura is executed by the parties before a Notary Public and the Title is vested in the name of the Purchaser.

On completion possession is given to the Purchaser and the signing of the Title Deeds in Spain equates delivery of the property to the Purchaser unless otherwise agreed.

In normal conditions the final payment is effected by the Purchaser upon completion before the Notary.

The Tax Fraud Prevention Act creates new obligations when it comes to property transactions. In order for the Land Registry to register a transaction, the Title Deed must include the Fiscal Identification Number (NIF or NIE in case of non-residents) and the means of payment for the purchase price.

If the vendor is a nonresident the law provides for the obligation of the Purchaser to withhold 3% of the purchase consideration to be paid to the Tax Office as a payment on account of the vendor’s Capital Gains Tax liability as result from the sale.

If this retention of funds is not made and paid, the Property conveyed will be affected to the payment of the Capital Gains Tax. This debt will be shown in the Land Registry Books.

The Vendor must produce a Capital Gains Tax Assessment within the next four months from Completion and the said 3% will either be deducted from any Tax to be paid or partially or totally refunded if the amount withheld exceeds the Capital Gain Tax to be paid.

Upon completion the Lawyer must check that all the outgoing expenses on the property are paid up to date and make the corresponding apportion with the Vendor´s Lawyer to this effect.

The Original Title Deed of Purchase will remain in perpetuity at the attesting Notary´s Office who will issue an authorised Copy of the Title Deeds which is the working copy which must be processed by the Purchaser for the payment of the taxes involved and the Registration in the local Land Registry. Payment of the taxes should take place within 30 days of completion and surcharges are applicable there from.

Costs

The costs involved in the acquisition of a property in Spain are different if the property is bought from a developer as off plan or as a resale property.

In summary the Purchaser has to allow for an additional 12% to 13% of the Purchase consideration to meet the transfer costs involved in the transaction.

For those who purchase property in Spain is strongly advisable to execute a Spanish Will.

Click here to read more about a Spanish Will