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What happens if you can’t pay your mortgage in Spain?

Mortgage rates have been increasing over the past few months in Spain. This has resulted in many people being put under financial pressure and struggling to pay their mortgages. So what happens if you can’t pay? 

What happens if you can’t pay your mortgage in Spain?
What happens if you can't pay your mortgage in Spain? Photo: JAIME REINA / AFP

Three in every four mortgages taken out in Spain are variable rather than fixed rate, so as interest rates rise many people are currently finding it difficult to keep up with payments. 

In November 2022, the Spanish government announced a deal it had made with the country’s banks to help alleviate the effects that high-interest rates are having on variable mortgage bills.

The first step is to see if you qualify for government help, which is available to families who earn less than €25,200 per year. 

READ ALSO: How Spain will help homeowners with rising variable mortgage rates

Patricia Suárez, president of the Association of Financial Users (ASUFIN), urges people not to struggle in silence and to make sure they talk to their bank straight away if they’re having problems or think they won’t be able to make their payments. 

“Since the mortgage law was approved, banks have the obligation to facilitate measures that allow debt to be restructured,” she explained.

She also adds that despite the fact that the Minister of Economy and First Vice President of the Government Nadia Calviño “already announced that they were going to put measures on the table to force banks to give facilities to customers, in part, they already exist and consumers should take advantage of them”.

Part of what Suárez is referring to is the Code of Good Practices which has exisisted since the Rajoy government in 2012 and includes measures such as:

  • Being allowed to pay only the interest on your loan for five years.
  • Having the maximum interest on your loan limited.
  • Having the period in which to pay back the loan extended to 40 years. 

READ ALSO: How to get a mortgage in Spain if you don’t have a job contract

What if the bank is unable to provide a solution?

If you have been to the bank and they were unable to offer you a solution to help make your monthly payments or you don’t qualify for government help for variable mortgages, it’s important to visit the bank again to make a stronger case. 

“The bank is bound by law. You can consult a consumer association to provide you with the regulations and the obligations of the bank to offer a solution,” argues Suárez.

“Banks would be committing suicide if they did not make it easier for their clients to pay their mortgage, because they already learned the lesson of the financial crisis [of 2008],” she adds. 

How long can I go without paying my mortgage before the bank will repossess my house?

If you really have been unable to come to some type of solution or new plan with your bank, then you do have a bit of time before the bank will repossess your home. This may enable you to bide your time to come up with the money. 

According to Suárez, per the new regulations, you will have a period of six months to a year. 

During the first six months, the bank should offer you restructuring measures, but they can’t start the foreclosure process until a year has passed. 

What if I’m thinking of buying a home and taking out a mortgage now?

Obviously, this will be up to individual financial and personal circumstances as to whether you should invest in or buy a property in Spain right now. 

The latest data from Spain’s National Statistics Institute (INE) shows that housing prices are not increasing so quickly now, but interest rates are. 

This means that many people can take the opportunity to set a price and take out a mortgage at a fixed rate, so they know they can make payments.

“It is more important to know what you will be paying over the next 20 or 30 years,” concludes Suárez. 

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TAXES

Spain’s deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain's Deputy Prime Minister and Labour Minister, has called for a freeze on variable mortgage rates amid news that Spain's biggest banks have enjoyed a bumper year of record profits.

Spain's deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain’s Labour Minister and the ideological force behind sweeping labour market reforms, has called for a freeze on variable rate mortgages following news that some of Spain’s biggest banks reported billions in record profits last year.

On Wednesday, BBVA reported a 2022 profit of €6.4 billion, the largest profit in its history. Driving this profit, the bank’s interest margin grew by a whopping 30.4 percent, commission income by 12.3 percent, and loans by 13.3 percent.

Banco Santander posted an annual net profit of €9.6 billion, up 18 percent from 2021 and higher than forecasted by analysts polled by financial data firm FactSet.

READ ALSO: Banco Santander posts record profit as rates rise

Given these record-breaking profits, especially against the backdrop of a prolonged cost of living and inflationary crisis in Spain, Díaz has said the government must act decisively to “freeze mortgages” and “moderate profits.”

“The crisis cannot be an excuse to earn more,” she said, adding that the rise in the Euribor rate is “very serious”, with the average increase (estimated to be €258 per month) “impossible to bear” for normal Spaniards.

Euribor is the interest rate most often used to work out mortgage payments and calculate both variable and fixed rates.

READ ALSO: What the Euribor rise means for property buyers and owners in Spain

It is anchored to the interest rate set by the European Central Bank (ECB), and, as we are now seeing, quite responsive to global economic events. By the end of January, the rate had risen to almost 3.4 percent, the highest level since December 2008.

“While the rise of the Euribor will increase the average mortgage payment by €250 per month, BBVA’s profits grow by 38 percent to reach €6.4 billion, the largest in its history. The crisis cannot be an excuse to earn more. Freeze mortgages, moderate profits,” Díaz wrote on Twitter on Wednesday January 31st.

Banks respond

Unsurprisingly, Spanish banks are not exactly keen on Díaz’s idea. BBVA President, Carlos Torres, said “I trust what will happen is that the benefits of a market economy continue to be defended”. 

Torres also tried to remind people of the “negative years” that BBVA has endured, with “many billions of negatives”. 

It remains to be seen how persuasive Spaniards or the Spanish government find this comparison, or whether Díaz’s Twitter idea will translate into policy.

Windfall tax

Díaz’s call for a mortgage rate freeze is in line with the Spanish government’s approach to the excess profits of banks and energy companies. In July, the Spanish government introduced a temporary windfall tax on excess profits in order to fund some of the extraordinary measures it was implementing to help the most vulnerable in Spanish society deal with the cost of living crisis.

The government in July introduced a draft bill to slap a temporary 4.8 percent charge on banks’ net interest income and net commissions in 2023 and 2024 to fund measures to ease cost-of-living pressures. Between the new taxes on banks and energy companies, they should generate around €7.0 billion for the state coffers in 2023 and 2024. 

However, in November the ECB published a non-binding legal opinion that suggested Madrid undertake a “thorough analysis of potential negative consequences for the banking sector” of the tax.

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