The Mortgage Loan Reference Index

Our next feature in our series regarding claims against Spanish banks is mortgage interest rates calculated against the IRPH or The Mortgage Loan Reference Index, which was an alternative to the Euribor and is basically another reference for calculation of the mortgage interests. IRPH was sold to the public as a stable and less volatile alternative to Euribor, but resulted to be entirely controlled by the bank entities themselves, being an even more expensive one for customers than the Euribor index. Although, in some sense it is stable: it has always been several points higher than the Euribor and given today’s Euribor historical lows, IRPH is extremely expensive. As an Index it is never fixed, so it should have never been sold as a more stable index than other alternatives.

The Spanish Supreme Court in its judgement dated 22nd of November 2017 declared IRPH completely legal, explaining its decision that as this index is an official one recognised by the Bank of Spain its annulation may question other indexes such as Euribor. Even so, this INDEX was removed from being used by law in November 2013.  However, we should assume that if the INDEX was fair then it would still be in use today.

On the other hand, there are many local judges that are on the side of the European jurisprudence in reference to the consumer´s rights protection and are cancelling some of the mortgages tied to the IRPH index. This question was referred to the European Court of Justice for a preliminary ruling. In the worst case scenario for banks this ruling may cost them 20 billion euros since 2003.

Bank law specialists predict that this situation is of a similar nature to the «cláusula suelo – interest rate floor clause» which could be repeated, if the European Court correct the Spanish Courts decisions.

The strongest argument to attack the IRPH mortgage is it’s lack of transparency & understanding. This was established in the Directive 93/13 regarding an essential clause of the contract, such as the one that sets the variable interest rate of the mortgage loan in the IRPH. It obligates the banking professional to explain to the consumer, before the signing of the contract, the configuration of the reference interest rate, its past evolution and its possible future evolution compared with other indexes.

As well as the multi currency mortgages that Fluent Finance Abroad talked about in the previous edition, this product is extremely complex for the average consumer to understand. This is because of the way it is calculated and because of its peculiar configuration. This makes it difficult for bankers to fully explain the index, meaning the consumer has little or no chance of making an informed decision when deciding which interest rate index to be tied to. As a consequence, this information is rarely, almost never, provided by banks. This oversight from the lenders side can be qualified as misleading for consumers.

This legal position is being maintained and recognised by various legal judgements and as a result, it can be applied to similar cases in order to succeed in demanding nullity of the IRPH index and return the excessive interest which has been unduly charged.

As a company, we believe that mortgages tied to IRPH was miss-sold to mortgage takers and we are taking cases on now on the assumption that the European Court of Justice will overturn the Spanish Supreme Court’s judgement dated 22nd of November 2017 although the process will take its time.

As always, our team of financial advisers and legal experts at Fluent Finance Abroad would welcome any inquiries and will advise accordingly with no financial obligation from the client.

For more information you may contact us on +34 952 85 36 47 or atinfo@fluentfinanceabroad.com.

Miss-selling Claims against Spanish Banks – Could they really be liable for EURO 33 billion worth of claims?

You may or may not be aware but Spanish lenders have been taken to task since the country’s banking and construction industries nearly collapsed as a consequence of the global credit crisis.

Such was the ferocity of the banks actions, that after mass public demonstrations in 2012, law makers in Spain brought in new rules to help protect borrowers and make it harder for lenders to evict (desahuciar) people from their homes.

Since the first set of new consumer protections laws came into force, other lending or selling practices have come under scrutiny and it is now estimated that Spanish lenders could have potentially a total of 33.000 million € (30 billion GBP) worth of claims against them via the Spanish judicial system.

The upshot of this is that if you have had a banking relationship, especially if you have or had a mortgage from a Spanish lender, you may be sitting on a claim where these news consumer protection laws could be used to recoup any money you have been overcharged or get compensation for products you may have been miss-sold via one of the banking institutions in Spain.

In continuation of our series of articles by Fluent Finance Abroad about claims against Spanish banks, let´s have a look on another interesting claim that Spanish lenders are having to contend with.

The claims we are looking at are the mortgage set up expenses or costs which are mandatory when setting up a legally binding mortgage contract witnessed by Spanish notary. These expenses are imposed on the client and normally include mortgage tax (AJD actos juridicos documentados), notary, mortgage registration on the land registry, survey and bank legal processing fees.

Every mortgage in Spain have these set up costs and they have always been paid by the borrower and not by the lender.

In 2015 the Supreme Court has declared abusive to charge all the expenses on the client and lately this year the Court has stated that the client should only be responsible for document duties.

This means that all the mortgage contracts including this clause can be claimed for via the normal legal process, however the amount to be claimed depends on the city where the action is filed and is normally about 3.000 to 5.000 Euros but is dependent on the size of mortgage taken at the outset. The larger the loan the larger the claim could be.

According to the analysts of Kepler Cheuvreux, Spanish people have paid € 26 bln of mortgage opening expenses since 1997, according to their estimation Spanish bank might pay back € 6.5 to € 9.7 bln including interests and costs.

It will come as no surprise to know that all Spanish lenders have contested the Spanish Supreme Courts decision and have referred this case to the European Court of Justice who have yet to give their final ruling on this matter.

This means that claims that are in process are being successful but if the ECJ reverse the Supreme Courts decision, then these claims could come to nothing.

Each case must be accurately studied and it is very important to demonstrate all the mortgage expenses contained in your contract, providing us with the following receipts: Notary, Registry Office, Bank legal processing fees and the document duties payment receipts.

These receipts should have been issued with the title deed but can be obtained and FFA would be able to obtain these if necessary.

Our team of financial advisers and legal experts would welcome any inquiries and will advise accordingly with no financial obligation from the client. For more information please contact Fluent Finance Abroad.

Multi-Currency Mortgages

In continuation in our series of articles, Fluent Finance Abroad offers a quick insight into another type of mortgage claim, more uncommon than the ones described in our previous series of articles about mortgage set-up expenses and the famous clausula suelo. Today we are talking about Multi-Currency Mortgages, Foreign Exchange Currency Mortgages or as they are named in Spain, hipotecas multi-divisas.

Before the credit crisis, these types of mortgages were being promoted to the general public by various national and international lenders in Spain and the consequences have been dramatic as well as disastrous for many that took these out.

In order to have an idea of what this financial product is, firstly let´s be clear that multi-currency mortgage is not a financial instrument regulated in the Stock Market Law, it is an unregulated high-risk financial product. And that is the main posture that the Supreme Court has defended in its latest judgement 20th of September 2017.

This type of mortgage loan allows for the instalments of the mortgage to be paid in a different currency to that of the country where the loan / mortgage is to be taken, which in Spain is the Euro. Thus, when a multi-currency mortgage is taken out, instead of Euribor, another reference rate is used, which tends to be the Libor, which will be associated with a different currency – Yen, Dollar, Swiss franc or Pounds Sterling to name the most common.

The most important consequence of this change in reference rate is relevant to the total cost of the loan, as well as monthly, quarterly and yearly instalments. Like with the Euribor, the Libor and the currency with which it is associated evolve over time, whereby there can be increases that can make your mortgage loan more expensive, or, on the other hand decreases, which make it cheaper. In this respect, these fluctuations of the currency chosen against the euro will be what conditions the cost of the loan.

Being subject to the foreign exchange market, this type of loan entails high variability or volatility in the final cost of the loan and the amount of the instalments. We can say that these types of mortgages are the opposite of stable.

According to the Directiva (EU Directive) 2014/17/UE Banks have the obligation not only to provide complete and correct information so that the clients understand not only the grammatical sense of the contract, but also the financial risks undertaken by signing the multi-currency mortgage. By not doing so, banks don´t comply with the Directive as well with the well-known “transparency control”.

Multi-currency mortgage product is particularly aimed at customers with strong financial knowledge, as its functioning is somewhat more complex than that of a traditional mortgage based on Euribor. In order the claim to be successful it is necessary to make it clear that the client that has contracted the multi-currency mortgage is an ordinary customer, not a stock market player and had no intention to speculate with differences in the exchange rates.

Moreover, as stated in several judgements of provincial hearings (SAP Santa Cruz de Tenerife Section 4 of 18 January 2017, SAP Valladolid Section 1 of 9 January 2017, SAP Valladolid Section 1 of 9 January 2017, SAP Palma de Mallorca Section 4 of 16 December 2016) the fact that the client once made a change of currency would not demonstrate neither his understanding of this kind of product, nor his acknowledgement of financial risk of multi-currency loans. Therefore, this fact does not suppose any difficulty in getting the estimated demand.

If you took out a Multi-Currency mortgage in Spain in the past and have / have not had problems with the repayment of that mortgage, there is a very strong possibility that the lender will be found negligent by authorising such a complex finance vehicle to an unexperienced currency investor and we urge you to contact us ASAP.

Multi-currency mortgage loans are normally more complicated and complex than the “normal” clausula suelo ones. Each contract must be accurately studied by our team of financial advisers and legal experts. We would welcome any inquiries and will advise accordingly with no financial obligation from the client.

 

For more information please contact Fluent Finance Abroad on 952 85 36 47 or by email info@fluentfinanceabroad.com

Anti-Brexit Spanish Mortgage Strategy

If you are being put off buying a Spanish property because of the drop in the value of the pound you need to read our Anti-Brexit Spanish Mortgage Strategy carefully.

You may feel that property prices in Spain will be affected by fewer British buyers coming into the market although it is important to bear in mind that there are still many nationalities eager to purchase here and in particular French, Belgians, Germans, Scandinavian, Eastern European / Russian and Middle Eastern clients. We even have buyers from Australia, New Zealand, North America / Canada & South Americas getting involved in the Spanish property market.

This means that prices are still, in our opinion, on an upward trend and there seems to be no evidence that this is going to change anytime soon. We see prices still increasing in Spain.

As the value of sterling has dropped by 18% against the Euro since the Brexit referendum on the 23rd June 2016 we thought it would be a good idea to try and explain how using a Spanish mortgage to purchase a property in Spain or any other EURO denominated property can be a very good idea.

The rate of exchange on the 22nd of June 2016 was around the 1.31 mark and as of today (23rd October 2017), we see sterling has dropped to 1.11.

We speak to many real estate agents that specialise in selling to British based buyers of Spanish property and the feedback we get is that the drop in sterling is not really having an effect on the amount of enquires they are receiving but it is having an effect on the amount of their clients actually taking the plunge and purchasing the property of their dreams in Spain.

At Fluent Finance Abroad we constantly keep an eye on how our market is changing and study ways in which we can use the tools at our disposal to give our clients an advantage given the state of market conditions at any given time.

Hence we are now finding that savvy British buyers are not being put off buying property in Spain as they are taking advantage of the availablility of non residents Spanish mortgage lending to facilitate and hedge against the low sterling value and buying a property using a Spanish mortgage.

How the Anti-Brexit Spanish Mortgage Strategy Works.

Mortgages in Spain are expensive to put in place. However even allowing for the cost of setting the mortgage up, in the long term clients will potentially greatly win out by taking a Spanish mortgage now whilest the exchange rate is so low.

If we take the example of a client, who is going to purchase a property for 300,000€. If they buy in cash with all taxes and fees added to the price, they will pay a total of approximately 337,500€ for the property. At todays exchange rate of 1.11 the client would need to transfer £304,054 to purchase the property in cash.

Assuming the client took a maximum 70% Spanish mortgage on the property, the amount they would need to pay  for the property would increase to 345’000€ to cover the extra bank fees or £ 310,810 @ 1.11.

A 70% mortgage would be 210,000€ (This reduces the amount they need to transfer by £189,189 @1.11 to the £, meaning they need to transfer a total of £121,621 instead of the full £310,810 at this stage in the buying process).

Once Brexit has completed (or cancelled depending who whose opinion you agree with) and things have settled back to a degree of normality in 2-3 years time the exchange rate should recover to around the pre Brexit rate of 1.31 to the £. At this point the client would need to transfer an amount of £160,305 to clear the mortgage completely.

This makes no allowance for the amount the client would have paid off the mortgage during the time they had it. Even taking into account the extra 7,500€ paid in Spanish mortgage set up fees the client has still managed to save themselves  £28,884 on the price of their property by taking advantage of the poor exchange rate.

It is important to point out that one of the main advantages of a Spanish mortgage is its flexibility when it comes to making early redemption payments of the loan amount either partially or in full. The fees to reduce the mortgage or to cancel the entire mortgage are very small and so you will have a great deal of flexibility to reduce the mortgage when the exchange rate goes in your favour. For example if you reduced your Spanish mortgage by €10,000 in the first five years, the charge would be €50 and after five years this is reduced again down to €25 for every €10.000 you reduce the mortgage amount by.

We are a long-established firm of independent mortgage brokers based locally in Spain and we have agreements with all of the major lenders. If you would like to discuss the Spanish mortgage market with us, we would be delighted to have a meeting or a telephone call to inform you of all of your finance options and to tailor an offer specific to your needs.

We look forward to hearing from you.

Contact us today.

British Banks and mortgages in Spain

British BanksHaving been arranging mortgages in Spain for over 13 years I feel like we at Fluent Finance Abroad, are well placed to inform you of how British Banks faired when it came to lending in Spain.

When I arrived in Spain back in January 2004 I walked into a frenzy of Spanish mortgage lending activity.

It seemed that there were hundreds of lenders all competing for the flurry of consumers from Spain and other parts of the world that fancied a flutter on investing in the Spanish property market.

Not only were Spanish lenders open for business, but there were a huge amount of foreign banks obtaining lending licences so that they could dish out cash on Spanish shores.

Who were the main players that were involved in lending in the Spanish property boom?

Well we had lenders from countries like Denmark, Holland, Norway, Sweden, Switzerland but the most prolific were the British banks.

For years UK banks were a high street presence in Spain and it was a common sight, especially in coastal areas to see Halifax Spain, Barclays Spain, Lloyds International Spain, Abbey National.

We also had lenders pass-porting in from Gibraltar of course, these included the likes of RBS / Nat West, Leeds Building Society or Norwich & Peterborough and they all seemed to be enjoying capturing a huge amount of new business and their respective head offices were keen to keep this going.

Why were British lenders so popular in Spain?

There are 3 main reasons;

  1. They were attractive to the biggest buyers of Spanish property which were buyers from the British Isles.
  2. They understood the income verification paperwork which would be presented by British clients, especially the self-employed British entrepreneur or property landlord.
  3. All British banks offered the holy grail of interest only Spanish mortgages that the Spanish banks were not prepared to offer.

All the reasons above seem reasonable at the time but then came the credit crisis.

Spain was hit extremely hard when credit markets dried up, but not only were Spanish bank hurt when the crisis hit.

British banks were equally affected, we all remember Northern Rock & Bradford & Bingley having to be turned into the bad bank of the UK.

British banks suffered so badly in the crisis they packed up their bags and left Spain pretty quickly and refused to lend anymore although they had huge toxic mortgage books which needed to be sorted out and cleared off their balance sheets.

Halifax Spain was sold to Lloyds and then Lloyds International then sold themselves to Banco Sabadell who now own TSB which split from Lloyds a couple of years back.

What’s the problem British lender face now?

This is a simple question to answer.

As most of the Spanish mortgages UK banks gave out were done on an interest only basis, the debt has not reduced down over the years.

The issue is that Spanish properties have reduced in value by as much as 70% in some areas and therefore many UK borrowers in Spain are now left with massive negative equity against their Spanish property.

The Interest only term do not go on for ever meaning that UK banks can now start calling in the debt.

This means that even if the owners sell their properties, they still have massive debts still to pay back to the bank which most borrowers are unable or unwilling to do.

Don’t despair, you must realise that this is as much of an issue for the British lending institution as well as it is for you, there are many reasons for this but a main one is that it can be a long and costly process to take legal action against a Spanish mortgage non payer.

The banks that are affected by negative equity issues in Spain are Banco Sabadell, Lloyds International, Halifax Hispania, Leeds Building Society Spain, Norwich & Peterborough, Nat West RBS Spain & Gibraltar & Jyske Bank.

If you have a mortgage in Spain that is in negative equity you do need to speak to a Spanish mortgage expert at Fluent Finance Abroad, we are able to guide you and help you give the property back to the bank, using current Spanish mortgage law, and leave the debt being 100% covered by the asset in question.

If you use current mortgage law in Spain, you are able to repay the whole debt, including community fees and property taxes by giving back the property.

You do need to know the law and therefore Fluent Finance Abroad Mortgage Brokers are best placed to assist.

Case Study:

Mr. JM bought in 2007 in Duquesa with a 100% mortgage from Halifax Spain for 275.000 € on an interest only basis, the debt never reduced and today the property was valued at 120.000 € meaning the client had a 155.000 € shortfall.

His bank, now Sabadell, informed him that his interest only payment of 500 € per month was ending and that his payments were rising to 2300 € per month which the client could not afford to do.

He approached us and we successfully managed to give the property back to the bank, witnessed by a Spanish notary issuing a certificate of full payment, meaning the client walked away from a serious debt in Spain.

The client had a number of property assets with equity in them so the fact that he has a legal document stating that he didn’t have a debt in Spain means that he and his family can sleep well at night knowing that the Spanish lender will not seek repayment via the county court system in the UK or Ireland.

If you have any questions please get in touch with us and speak to one of our a Spanish mortgage experts who can advise you and can help in many ways.