Law 5/2019 regulating real estate credit has come into force, amending certain aspects of Spain’s mortgage legislation. One of the changes requires banks granting mortgage loans to cover the notary fees, Land Registry fees and administrative processing fees (gestoría). This is expected to save borrowers an average of between €500 and €1,000.
The main changes are outlined below:
Floor clauses are abolished. For variable-rate mortgage loans, banks may no longer set a floor limiting how far the interest rate can fall when the reference index (EURIBOR) decreases. The sale of tied products is also prohibited.
Mortgage costs. Banks must pay the Stamp Duty on Documented Legal Acts (Impuesto sobre Actos Jurídicos Documentados, or AJD) and the cost of the first authorised copies of the notarial deed.
Borrowers must pay the property valuation fees and the cost of any additional copies of the notarial deed.
Pre-contractual information requirements are strengthened. Financial institutions must provide adequate information to ensure that prospective borrowers fully understand the terms of the mortgage loan. This includes ensuring that transparent information is provided at least ten days before the notarial signing.
The role of the notary is strengthened. The notary must certify that the bank has complied with its obligations and that borrowers understand the terms of the mortgage. The notary must also conduct a comprehension test and record the relevant information in a notarial certificate.
Banks must assess the mortgage applicant’s creditworthiness effectively. This assessment must take into account information about the applicant’s occupation or employment, current and foreseeable income, assets, savings and fixed expenses.
Early repayment fees are reduced by half for fixed-rate mortgages.
Missed payments. Banks will face stricter requirements before they can initiate foreclosure proceedings against borrowers who fall behind on their mortgage payments. During the first half of the loan term, they may initiate court proceedings only if the borrower has missed 12 monthly payments or the outstanding amount reaches 3% of the original loan principal. During the second half of the loan term, the thresholds rise to 15 missed monthly payments or 7% of the original loan principal.