The new Mortgage Law, known as Ley de Crédito Inmobiliario (or Real Estate Credit Act), went into force on June 16 of last year, and after a few years of anticipation, some important changes have finally been made when taking out a loan for a real estate object.
The series of changes affect all the parties involved, so not only consumers, but also notaries and banks. Check out some of the new law’s details in this article by ShMadrid!
Related article: Everything You Need to Know About House Valuations
Mortgage requirements in 2020
The new law applies to every mortgage contract where a borrower is a natural person and the object for which a mortgage is needed is a residential property. These new regulations aim to secure the protection of consumers who apply for a mortgage loan.
Customers must always be able to understand exactly what they are signing, without, as it sometimes happened in the past, being subjected to unfair terms and conditions.
Previously people had no other choice than to accept interest on late payments, excessive costs to formalise the loan and the much discussed “Floor Clauses”.
In order to improve and maximise customer guarantees, creditworthiness conditions have become stricter, and this reduces the risk of possible non-payment.
This means the lender has to check and verify every customer’s credit history with CIRBE (Central de Información de Riesgos del Banco de España or the Risk Information Centre of the Central Bank of Spain). Once the verification is done and the outcome is normal, the mortgage can be granted.
When signing a mortgage contract, the role of the notary is still of importance, as he will draft and witness the contract and advise his client on clauses and terms in the contract. He will ensure that all parties understand all the information in the contract.
Related article: Changes in Real Estate Laws and Regulations in 2019
One of the most important issues in Spain used to be the Floor Clauses in mortgage loans, but the new law now prohibits these, and Article 21.3 makes it very clear that with variable interest rates it is no longer possible to set a minimal interest rate when the reference rate decreases.
In addition, clients are no longer obliged to take out any type of insurance or product (pension plan, home insurance policy or life insurance policy) with the mortgage granting company.
However, companies are allowed to offer certain discounts on loans granted, when contracting any of the previously mentioned products. This way, the customer and the bank can agree on a lower interest rate.
One of the most interesting details of the new rules and regulations discusses payment of the expenses that go hand in hand with taking out a mortgage loan. At this moment, banks take care of registration fees, notary fees, agency costs and the Impuesto de Actos Jurídicos Documentados (or tax on legal documents). The customer only pays the valuation expenses.
In the past, lack of information or inadequate advice by some financial institutions led to clients being put in vulnerable situations, where they had to pay too much interest for a long time. This is what happened to everyone who had a contract with a Floor Clause, and luckily this can never happen again under current mortgage regulations.
What else do you know about requirements for a mortgage in 2020?