The new Housing Credit Law, better known as the Mortgage Law, came into effect in Spain this week. The new legislation has been delayed more than three years and stirred various controversies. Spain is thus the last European country to transpose Brussels’ directive.
One of the most debated points of the law was its retroactive effect. Simone Colombelli, from iAhorro explains whether the new conditions developed in this law would apply to mortgages already signed:
The new Mortgage Law will not have retroactive effect in general. So the new norms will not be applied to mortgage contracts singed before the law came into effect. Despite this, those already with mortgages could benefit from the changes in the law when renovating or subrogating their loan.
What are the benefits of this law?
Consumer protection, transparency and a fairer sharing of costs between the client and the financial entity. The new Mortgage Law could be summarised in three points to get a global vision of its objectives. With consumer protection and transparency it seeks to rectify some errors of the past. Now with this new law, legislators want customers to know their loan in detail and know what they are signing. In this way lawsuits in this sector will be reduced, which in recent years has been the centre for judicial processes related to base clauses or the Mortgage Loan Reference Index.
The law also shares the costs in fairer way when the mortgage is formalised. Before the customer had to pay everything and now only has to pay the valuation and the notary´s copies.
Mortgage foreclosure is another major benefit of the law. Now the bank can only foreclose if the customer owes 12 months or 3% of the mortgage in the first half of the loan, before it was only 3 months. In the second half of the loan, foreclosure goes from 12 months to 15% or 7% of the debt.
Why has the aw taken so long to come into effect in Spain?
In 2014 the EU pushed a norm to strengthen the protection of consumers who contract a mortgage. From that moment, EU countries ought to adopt these legal changes, something which was delayed in Spain because of the political instability in recent years.
In 2016 the European Commission gave Spain three years in which to adopt the new norms, something which has not been possible until now. In 2017 the government of Mariano Rajoy approved a first legal project which was modified by the Pedro Sanchez government and finally could not be voted on the Congress until 21 February 2019. Before being voted on in the Congress, the text had pass through the Senate so that the various political parties could present their amendments.
Will the new law affect the mortgage supply in 2019?
The approval of the law will now unblock the mortgage market after months of uncertainty. The banks will return to medium and long term strategic planning in their mortgages, given that the approval of the law fixes a stable legal framework. Some banks had already begun to adapt to the new law before it came into effect, taking on all the costs, including of valuation, with the aim of attracting clients.
This is the beginning of diversification in what is on offer, something that we will see in the next few months. The “mortgage war” to capture customers seeking financing to buy a house will begin with the approval of the new law, supply is going to diversify and the most important thing is that the customer compares and finds the product best adapted to his needs.
What has been left in the inkpot?
Non-recourse loans. This has been one of the most debated points in the law, which will oblige the banks to cancel the debt of a customer with a house.