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How Spain’s new mortgage laws could affect homeowners

Spain's new mortgage laws have come into effect. Here's what you need to know.

How Spain's new mortgage laws could affect homeowners
Photo: AFP

After two years of waiting, Spain's new mortgage laws come into effect this month. These laws stem from an EU directive to align mortgage laws within EU member states and to improve the behavior of mortgage issuers.

In the past, Spain's mortgage laws were very favorable to banks and often punitive to borrowers. The new laws are very good news for homeowners and people wishing to purchase property in Spain.

Keep reading to learn the changes that will affect borrowers the most.

Longer default period before repossession


Photo: podsolnukh/Depositphotos

This is the best news for homeowners. In the past, Spanish mortgage laws allowed lenders to begin the repossession process if a borrower was three months late in their mortgage payments.

Moreover, the current three-month rule was a recent change. Following the 2008 financial crisis, lenders could repossess a home if a borrower missed only one monthly mortgage payment.

Spain's new mortgage laws state that:

  • In the first half of the mortgage term, lenders cannot repossess a property until the borrower is 12 months late in their mortgage payments, or the total amount of their arrears is more than 3 percent of the total capital loaned.
  • In the second half of the mortgage term, lenders cannot repossess a property until the borrower is 15 months late in their mortgage payments, or the total amount of their arrears is more than 7percent of the total capital loaned.
  • Late payment fees can be no more than 3 percent of the amount in arrears. Before the new mortgage laws, late payments fees were up to 12 percent.

More mortgage fees paid by the banks


Photo: photography33/Depositphotos

This is another game changer for borrowers. The fees associated with a Spanish mortgage are:

  • Fees paid to a gestor. Gestor fees generally amount to a few hundred euros.
  • Fees paid to the Notary.
  • Fees paid to the Land Registry. Fees paid to the Notary and Land Registry usually amount to around 10percent of the property value.
  • The AJD (Actos Juridicos Documentados), or mortgage tax. Depending upon the region in which you reside, the AJD can amount to up to 2.5 percent of the property value.
  • Property valuation fee. This typically amounts to 0.1 percent of the property value.
  • Mortgage origination fee. On average, this amounts to 1.5 percent of the property value.

In the past, ALL of the above costs were born by the borrower. Spain's new mortgage laws state that lenders must now pay all of the above fees, except for the property valuation fee and origination fee. So, banks have gone from paying none of the mortgage fees to paying the majority of the fees.

Lenders can no longer force borrowers to purchase other products

Spanish banks are geniuses at cross-selling. In the past, they required borrowers to purchase life insurance and home insurance before issuing a mortgage. Now, they must allow borrowers to accept insurance from external carriers. Moreover, they cannot threaten to raise the interest rate if the insurance is issued by a third party.

'Floor clauses' will be removed


 

Photo: aeydenphumi/Depositphotos


 

Prior to Spain's new mortgage laws, lenders put a floor on variable rate mortgages. Meaning if interest rates went up, they made more money but they were protected if interest rates fell. Now, the floor is 0 percent of the mortgage rate (not EURIBOR).

This provides additional protection for borrowers since a mortgage interest rate is always higher than EURIBOR. This is particularly relevant in the current environment, where EURIBOR is currently in negative territory.

Spain's new mortgage laws will allow borrowers to convert foreign currency denominated mortgages into euros

Bank clients with mortgages denominated in currencies other than the euro have the right to convert their mortgage to euros at any time. Additionally, banks must periodically inform their clients if their total debt is increased due to currency fluctuations.

If the above requirements are not honored by the bank the contract will be considered void. Interestingly, the borrower could demand that their mortgage is converted to euros retroactively and that all over payments in the other currency be deducted from the pending capital of the mortgage.

It will be cheaper for borrowers to repay their mortgages mid-term

Early repayment fees are cheaper and can only be assessed if the bank will incur a loss from early payment. Repayment fees ahave now reduced from 0.5 percent within five years of a variable rate mortgage to 0.25 percent within three years and 0.15 percent if repayment occurs within four to fve years of mortgage being taken out. There will be no fee if repayment occurs after five years.

Additionally, banks will no longer be able to delay the early repayment of a mortgage, which happened in the past. Spain's new mortgage laws stipulate that the maximum notification time a bank can demand is one month. After notification of intent to repay the mortgage, banks have three working days to assess the demand and provide the relevant information.

It will be cheaper to convert a floating rate mortgage to a fixed rate mortgage

Spain's new mortgage laws stipulate that banks can charge no more than 0.15percent to convert a mortgage from a floating to a fixed rate. These can only be assessed in the first three years of the mortgage. After that, the fee is 0percent. However, in this instance the borrower must pay the associated notary and Land Registry fees.

More protection for consumers

The new laws contain a number of other conditions to protect consumers. The primary ones are:

  • The standard mortgage offer document, called a FIPER, will be replaced with a FEIN. Much more detailed and transparent than the FIPER, it will allow borrowers to shop around for their mortages. If the mortgage is floating rate, the borrower will also receive a separate document outlining the potential effect of interest rate fluctuations.
  • A 10 day “cooling off” period. Borrowers must wait 10 days between receiving a FEIN and signing the loan documents.
  • Borrowers must take a small test at the notary to demonstrate they understand how the mortgage works.
  • The Banco de España will create a new agency to process mortgage related complaints and claims.
  • All commissions granted to lenders for issuing mortgages must be fully transparent.

Conclusion


Photo: AFP

Spain's new mortgage laws are a welcome addition. Not only will they protect consumers, they will also stimulate the housing market as currently, many Spaniards are terrified of taking out a mortgage and the fees involved. Additionally, the foreign currency conversion provision provides additional protection for expat borrowers.

 

This advice has been supplied by Moving2Madrid. If you are relocating to Madrid and want advice on buying contact Moving2Madrid to make an appointment for a free consultation.

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PROPERTY

REVEALED: The cheapest most in-demand areas in Spain to buy a house

If you're considering making the move and buying property in Spain, but don't fancy purchasing in a rural village in the middle of nowhere, you should know where the cheapest, most in-demand parts of the country are.

REVEALED: The cheapest most in-demand areas in Spain to buy a house

If you’re thinking about relocating, Spain is a fantastic place to do it. Foreigners have been moving to Spain for decades, not only for its fantastic food and weather, along with a laid-back lifestyle, but housing is generally affordable – if you know where to look.

Though the rise in the Euribor has sent interest rates spiking, house prices in Spain are expected to flatten somewhat in 2023 and it could be a good year to find a bargain, depending on your financial situation.

Knowing what type of house you want and where in Spain you want to live is one thing, but knowing the cheapest, yet most in-demand parts of the country could really help you narrow down your search.

Fortunately, Spain’s leading property website Idealista has put together a list of the most ‘in demand’ municipalities of Spain and where you can find the most expensive and, more importantly for the house hunters among us, the cheapest municipalities of Spain to buy property.

It’s based on data from the last quarter of 2022 and is the average price of housing in towns with more than 1,300 sale announcements and costs valued at more than €1,100 per square metre. 

You can find the ten cheapest areas of Spain to buy property by average price below, but it’s worth noting that Idealista did these rankings by average price across the entire municipality, so there are likely individual towns and villages dotted around Spain where prices are significantly lower.

That said, this list gives you a good idea of the areas to look out for.

READ ALSO:  What will happen with property prices in Spain in 2023?

The 10 cheapest municipalities in Spain to buy property 

Santa Pola (Alicante) – Santa Pola, in the Alicante province, is the cheapest most in-demand municipality to buy a house, according to Idealista’s rankings. The average price for a house in Santa Pola costs just €151,796, though this may come as a surprise given its prime location in a foreign hotspot on the sought-after Costa Blanca. The main town of Santa Pola itself is a small beachfront community with a population of around 35,000. It also has a large foreign population and is a short drive or bus away from both Alicante and Elche.

Ourense (Galicia) – Next on the list is Ourense in Galicia where the average price is €154,941. The municipality is home to several towns and villages, surrounding the main medium-sized town of Ourense itself in southern Galicia. The town has a population of around 105,000 and is a little over an hour’s drive from both Santiago de Compostela and the coastal city of Pontevedra.

Oviedo (Asturias) – Third on the list is the municipality of Oviedo where you’ll pay an average of €154,968 for a property. Another area in northern Spain, the main city Oviedo itself, which is the capital of Asturias and has a population of 220,000. It sits between Cantabrian mountains and the Bay of Biscay. It’s known for its picturesque medieval old town and impressive architecture. 

Jerez de la Frontera (Cádiz) – Properties cost an average of €155,563 in the municipality of Jerez de la Frontera, or Jerez as it’s commonly referred to. It’s located in the Cádiz province of Andalusia and is a real piece of ‘traditional’ Spain. Jerez city is a decent-sized place with a little over 200,000 people and is known for horses, flamenco dancing and sherry, as well as the Alcázar de Jerez, an 11th-century fortress that harks back to Andalusia’s Moorish past.

READ ALSO: Is it better to buy or rent in Spain right now?

Torrevieja (Alicante) – Another municipality in Alicante and another incredibly popular with foreign homeowners. Properties here go for an average of €155,787. Torrevieja itself has a population of 82,000 and is another coastal town, but also has nature trails and salt plains nearby.

Murcia (Murcia) – Murcia is often overlooked, wedged between Alicante and Andalusia, but you could grab a bargain here with average prices of €157,119. Murcia capital is a bustling city of almost 450,000 people, and is strategically placed for trips to the Costa Blanca, Costa Calida, Costa del Sol, and Costa de Almeria.

Parla (Madrid) – The municipality of Parla lies just 20km south of Madrid and the town of the same name is home to 130,000 residents. It’s a great commuter area for those who work in Getafe or the capital. A house here costs an average of €160,652. 

Salamanca (Castilla y León) – The municipality of Salamanca surrounds the capital of Salamanca in Castilla y León in northwestern Spain. Buying a property in this area costs an average of €162,909. The main city of Salamanca is known for its university, which is the oldest in Spain and dates back to 1218. Understandably, much of Salamanca’s roughly 150,000 residents are students, which gives the town a lively atmosphere.

Burgos (Castilla y León) – Another northwestern Castilla y León municipality, is Burgos has around, where you can buy a house for just €163,164. The city of Burgos has around 180,000 inhabitants and is known for its medieval architecture and grand cathedral. 

Dos Hermanas (Sevilla) – The second most populous municipality in the province of Seville, properties cost an average of €163.274 here. The Andalusian town is just 15km south of Seville, making it great for commuters or those who want plenty of culture nearby. 

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