Investors in Spanish property, who also have a Spanish mortgage, have been enjoying something of a windfall in 2017. The Spanish judiciary has taken the banking sector to task on two elements of the Spanish mortgage market: the set-up fees and what is known as a floor clause. This is good news for people with Spanish mortgages, and advice to those considering applying for a Spanish mortgage – don’t let the bank overcharge you.
Who pays the Spanish mortgage set-up fee?
Charging the borrower for mortgage set-up fees has been going on for two decades. These fees should have been pad by the banks and in December 2015, Spain’s supreme court ruled that clauses introduced by two Spanish banks, forcing borrowers to pay all fees associated with taking out mortgages and buy-to-let loans, were abusive. The judges argued that since it is the banks that require the lien of debt placed on a title deed, the bank should pay for it.
According to Spanish property market expert Mark Stücklin, 90% of borrowers have won claims against Spanish banks this year. He reports that so far 18 provincial courts have pronounced that it is unfair for the borrower to pay all the costs and those who have overpaid are getting refunds. As he says, it costs on average €3,000 to set up a mortgage in Spain, but now the banks are being forced to pay up. Indeed, BBVA is one of the banks that is paying the registry and mortgage deed costs, which is more generous than some of its competitors. Santander, for example, only pays costs for the registry and the first copy of the mortgage deeds.
These judgements have occurred before the new mortgage law has even been debated in parliament; although that is due to happen soon. However, there is still some ambiguity, as the law does not clearly state who should pay the each of the costs associated with a mortgage in the future. So, this is something to watch out for in the press and we will update you when we get further news.
The floor clause scandal
Spanish banks have also ‘abused’ their borrowers with the use of a ‘floor clause’. This allowed them to protect their profits during a period of low interest rates. Basically, with a floor clause, the bank claims that there is a minimum interest rate it can charge. So regardless of how low Euribor fell, Spanish mortgage borrowers with floor clauses continued to pay interest at the fixed minimum rate, despite having variable-rate mortgages.
Now that the Spanish and European courts have made this illegal, banks are faced with having to pay back significant amounts of cash to borrowers. The worst part of this was that most people weren’t even aware of the floor clause because it was hidden in the Spanish mortgage documents and the majority of borrowers weren’t made aware of its existence by their bank. With the Euribor rate at a spectacular low since 2016, it is time for mortgage holders to make sure they are not paying too much. It isn’t too late to make a claim.