A new era for the housing market in Spain: we analyse the new Mortgage Law.

2018, the year in which we are expecting to see the consolidation of the recovery in the housing market in our country, will also see one of the most significant changes in recent years in the property sector: the entry into force of the new Mortgage Law during the first half of the year.

The new Law, which was approved last November by the Council of Ministers, has the aim of bringing Spanish regulations into line with European Directive 2014/17, while also seeking greater transparency for consumers and offering legal certainty to the financial sector.

What do you need to know about the new Mortgage Law and how the measures introduced by Europe might affect you?

Are they retroactive?

In general terms, the regulations have two effects on mortgages already in operation: the possibility of switching from variable-rate to fixed-rate, and the payment instalments and sums payable.

The first provision is intended to allow switching from one type of mortgage to the other, thereby reducing the uncertainty associated with being at the mercy of the variability of interest rates, and as such the bank will only be allowed to charge a commission of 0.25% during the first three years of the mortgage. After this period, consumers will not have to pay any kind of commission.

Meanwhile, new limits are imposed on foreclosure:

• During the first half of the contract: where the default exceeds 2% of the loan or 9 monthly instalments.
• During the second half of the contract: where the default exceeds 4% or 12 monthly instalments.

However, it should be emphasized that the aforementioned periods can only be applied to loans in which the foreclosure clause has not been previously triggered.

It will be possible to change currency.

The Law will allow the mortgage to be converted into euros or into the currency in which the highest proportion of income is earned, and this may be requested at any time. No such possibility was envisaged by the legislation previously.

The sale of complementary products and incentives for attracting new clients are not envisaged.

Hitherto, banks would offer a series of products linked to the mortgage which customers would be required to purchase. With the new Mortgage Law, this is outlawed in an attempt to maximize transparency.

Banks will be able to offer them, even including some kind of benefit as part of the conditions of the loan (known as ‘combined sales’), and distinguishing between estimates that include them and those that do not.

Meanwhile, bank employees will no longer receive incentives for selling mortgages, and this aims to ensure that quality prevails over quantity.

A cap is established on the fee for accelerated cancellation of a mortgage, whether in full or in part.

• For variable-rate mortgages, the cap is set at 0.5% for the first 3 years, and 0.25% up to the fifth year. As from then, there will be no cancellation commission.

• For fixed-rate mortgages, the penalty is capped at 4% for the first 10 years, and 3% thereafter.

It should be emphasized that these caps will only apply to new mortgages executed following the entry into force of the new regulations.

Other points of interest about the new Mortgage Law.

- A notarial instrument will need to be filed prior to the execution of the contract in order to ensure that the conditions are in compliance with the legal requirements and so as to resolve any doubts. The notary public may be freely chosen and he/she must offer the service free of charge.

- The regulations place a cap on default interest, which may not exceed 9%.

- A ‘blacklist’ of clauses deemed to be unfair will be drawn up, and where these clauses appear in new contracts, banks will be required to take the said mortgage off the market.

- It will be possible to use a new simpler contractual precedent, regulated by Royal Decree, which has been drawn up with the aim of being understandable to anyone.

Do you think these changes will be positive? What other challenges and opportunities within the housing market will make headlines in 2018?