Are you getting a mortgage in Spain? All you need to know about the new mortgage regulation in Spain, 2019.
Thanks to IMS Mortgages for their help and advice on the new Spanish mortgage laws. We hope to offer their services to our expat clients all over Spain.
Spain introduced its long overdue mortgage regulation in June this year.
The regulation covered a number of areas concerning the process for lenders on transparency. Also covered is the issuing of offers and know your client. The laws are now also requiring brokers to define their status and register accordingly.
Mortgage in Spain: The industry is changing!
All brokers must now register with the Bank of Spain. Then they define if they work with one bank or the majority of Banks. The Spanish regulators introduced new requirements for Brokers and individuals, responsible for placing applications and negotiating with the lenders. Brokers now must hold a certificate proving they have undertaken 50 hours course-work and passed the new exam. This is only good for our expat clients.
The same individuals must hold public liability insurance just like other professionals.
Can anyone be a mortgage broker?
No! Any brokers who are unable to fulfil the new obligations will only be able to present a client a Bank. They will no longer be able to present paperwork for the application themselves; negotiate on terms and conditions or participate in anyway other than passing the clients contact details to the lender.
All lenders going forward must define and include in their APR any linked products they wish to sell the client. They must now offer the client a choice of taking linked products or not. They are able to offer one rate with linked products and one without.
On receipt of an offer an applicant now has a mandatory 10 day cooling off period before they can complete. Within this time, and no less than 48 hours before they or their POA must visit the Notary to undertake a test. This is so the Notary can ascertain that the mortgage holder knows and understands the product they will be signing for.
If a new offer has to be issued for any reason this process and timings start again.
Lenders have to reduce the early repayment penalties they can charge as a maximum. Lenders must now, on written instruction, allow a borrower to overpay within defined timescales.
Maximum penalty interest rates that lenders can charge in event of arrears have also been significantly reduced by the Government. Now Banks cannot take action for 12 months or until a set percentage of the capital is in arrears whichever comes first.
Mortgage in Spain. Are the regulations effective?
In general the new regulations are a positive step to ensure bad practices like Floor rates never happen again and to ensure that the broker market becomes more qualified and professional.
Implementation of the new regulations has however been less than positive. Banks were not prepared for the new rules. They had to make major system changes in order to meet their obligations causing delays and cancellations.
Some aspects of the regulation have been badly written. It has to be considered that the changes being interpreted, do not mean in fact, what they intended to do. The key on these is around the area of currency.
What happens if the currency fluctuates more than 20%? Under the regulation as it stands, the applicants have the right to request that the loan is transferred to the currency of their earnings. This applies if the applicant is a resident of, or is of a nationality, that is currently a member of the EU and they earn their money in anything other euro.
The impact of that on expats currently EU citizens but living and working in other countries is that lenders have either stopped lending to them, have withdrawn the ability to take a fixed if they earn in currencies the lender cannot in future transfer it to.
This has heavily affected applicants from the middle east.
Some of the more pragmatic lenders have worked out that it is most unlikely they will ever be called upon to change the currency and have decided it is business as normal. If a currency fluctuates by 20% any benefit of having the payments changed to currency of earnings will be wiped out by the extra level of capital this would mean they owed. Currencies also have a nasty habit of fluctuating back. Any benefit for the borrower may in fact be very short term.
It is difficult to see how this particular part of the legislation has helped the consumer. It may in fact encourage a borrower to make a hasty but unwise decision. Finally the rule change is preventing a number of applicants access to either the market or the full range of products. In general this change has little benefit to the wider market.
We may see as yet some adaptations to the legislation where the new rules either don’t make sense or in fact have a detrimental affect rather than a positive one.
An experienced long standing and independent broker can help borrowers overcome any issues. IMS in our experience, ensure our clients get the best out of the new regulations.
If you’d like to speak to the mortgage experts, International Mortgage Solutions, please get in touch with Nicola in our La Zenia office.
Other key facts, relating to Spanish banks:
Fixed rates in Spain are fixed for lifetime of loan and provide good value for money along with stability of payment.
Maximum loan to value for non residents is 70% with some lenders restricting this to 60%.
Uk nationals have seen many Banks implement a tightening of debt to income ratios and lower loan to values being offered as Banks are nervous of impact of brexit on UK economy and the pound.
Rustica country properties often value less than asking price. As Rustica land has little official value and maximum loan to value is 50%.
Banks work off net rather gross incomes and look to see that outgoings on regular commitments as per credit files and the new monthly payment in Spain does not exceed around 35%.