New Spanish mortgage law or Mortgage Credit Directive

There has been a lot of talk regarding the new Spanish mortgage laws that came into force on the 16th June 2019 so we thought it was about time we addressed some of the major changes that potential or existing borrowers should be aware of…

The changes to the rules and regulations are not a directive from the Spanish government but a directive brought in by the EU, the Mortgage Credit Directive 2014/17/EU which should have been implemented since 21st March 2016. Countries like the UK implemented these new rules on the due date, mainly because the UK mortgage market is already highly regulated and the new changes had little impact. The Spanish mortgage market and people operating within it, have not been regulated to such an extent hence why it has taken 5 years for the Spanish authorities to finally get around to enforcing these new rule changes.

Unfortunately, now these new regulations are in place, we are seeing that there is an element of chaos and last minute panic with the lenders, others connected to property sales and firms linked to the new mortgage rules, which is causing confusion and delays with new mortgage lending. Hopefully, in a few months the market will have become used to these rules and mortgage applications can get back to normal in terms of timescales to completion.

For consumers or Spanish mortgage borrowers, the changes to the rules mean that there has to be greater transparency; which is a great thing for consumers in the Spanish mortgage market, especially given the problems borrowers have had in this country over the last 15 to 20 years with mortgages either being miss-sold by bankers & abusive clauses being inserted into mortgage contracts without being fully disclosed or explained to the consumer.

These bad practices have had a hugely detrimental affect on borrowers, which we can see with the amount of serious claims being brought to the Spanish courts requesting compensation and the large amount of repossessions that are still occurring. So, the greater transparency will try to eradicate some of the abusive practices that lenders have entered into and its goal is to protect the general public and help them understand their lending proposals better.

There will be some negatives regarding these new rules. This new way of doing things will mainly mean that getting a mortgage application to completion may take a while longer than it normally does as the law now states that there has to be a 10 to 15 day cooling off period that the lender has to give the borrower along with the full and complete terms and conditions of the mortgage proposal. This is to ensure the borrower has time to reflect / consult on the deal that is being put forward, so expect completions to take a week or two longer and make sure you make vendors aware that a quick turnaround to completion is unlikely going to be possible.

The best way to avoid delays is to get your Spanish mortgage finance approved before you make an offer on a property. Here at Fluent Finance Abroad (FFA) we have an agreement in principle facility with our lenders which means that the mortgage offer is officially granted subject to survey. Once the perfect property has been sourced, the valuation can be instructed immediately speeding up the sales process no end.

The next part of how the new rules and regulations affect the Spanish mortgage market is how it regulates the people / companies that advise on Spanish mortgages.
This is where the new directive really makes a difference to consumers as anyone who claims to be an EXPERT in Spanish mortgages and their rules and regulations must certify that they are indeed qualified and licenced to give advice on Spanish mortgages.

The types of individuals or companies who have been promoting themselves as being able to advise on mortgages in Spain have been the following:

  • Mortgage advisers such as ourselves, Lawyers, Accountants, Real Estate agents and anyone else who wanted to set up and earn commissions for introducing mortgage business to banks as there has been no real regulation on mortgage advice and practice in Spain.

From now on, any person or company who wishes to conduct mortgage business in Spain must comply with the following rules and regulations or risk being fined or worse.

  • All Spanish mortgage advisers / experts or anyone who promotes or advertises that they organise mortgage lending for end users, must obtain the necessary licences and certificates from the required authority. FFA are applying for the national license from the Bank of Spain (Banco España) so we cover the whole of the country and its islands
  • The Spanish mortgage adviser must pass a formal and official exam which is specific to the Spanish mortgage market and its laws. The exam will be in Spanish therefore your mortgage adviser must have a good knowledge of the language in order to sit the exam. There are a lot of foreign owned mortgage firms/sole traders who may struggle with this basic requirement.
  • Company directors of firms promoting that they offer expert Spanish mortgage advice must also demonstrate that they have the required knowledge and therefore must sit the required examinations if they are to be involved with giving mortgage advice: Directors of mortgage companies cannot just employ qualified advisers to bypass the regulation.
  • The mortgage broker must have adequate professional liability insurance (PLI) to cover any bad advice they give to consumers.
  • Companies and individuals must have clear complaints systems and procedures easily available to potential or existing clients if there is a requirement for a complaint to be made.
  • All mortgage advisers and mortgage company directors must register with the anti-money laundering and anti-fraud register SEPBLAC which is linked to the European Central Bank (ECB). You can follow the link for more information https://www.sepblac.es/en/
  • The mortgage adviser must disclose to the consumer that they receive a commission from a lender or lenders and if this commission is not known at the outset then it must be disclosed at a later date during the application process and before completion.
  • The adviser / s must be able to implement and follow specific and compliant sales procedures and be able to document the advice given from the first client contact until the very end of the application process.
  • Records of the application process must be kept on secured files for a minimum of 6 years, just in case of a historical complaint or investigation by the regulatory authorities.

These are some of the important changes of the new EU mortgage directive and this is what Fluent Finance Abroad are doing to comply with the above –

  • FFA have for the last 3 years had Professional Liability Insurance but we have increased the covers to comply with the new laws – policy available for inspection upon request
  • The company director, Marc Elliott has already applied to register with SEPBLAC
  • FFA have employed an external compliance and legal entity to advise & supervise the firm to ensure that all new procedures are being or have implemented within the required timescales set down, which is 6 months from the 16th June 2019.
  • FFA have always kept secure files recorded on all its business so we already comply with those requirements.
  • All the staff at FFA have passed mortgage exams in other jurisdictions E.g. the UK or in other areas of the finance industry such as MIFID 2 and we are putting forward 4 members including the director Marc Elliott for the exam, which we expect to have secured well within the 6 month period.
  • FFA do have to issue a new terms of business letter to give to new potential clients, this information will be explicit about who we are, what qualifies us to be in the Spanish mortgage business and how we get remunerated. We are in the process of implementing this with the guidance of the external compliance company.

All in all, FFA have been calling for such regulation for over a decade and therefore we welcome the new mortgage credit directive. If this was in place before the credit crisis, maybe the Spanish property market would not have suffered so badly.

But as the saying goes, it’s better late than never.

For further information please contact us at info@fluentfinanceabroad.com or call our office on 0034 952 85 36 47.

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.

Clausula Suelo – Interest rate floor clause

The clausula suelo is the most common claim against lenders as this clause would ensure that the interest rate you would pay would never go below a certain level which in most cases have been around the 3 – 5.5% mark. Given that interest rates since 2011 have plummeted and that the EURIBOR is actually below zero, this means that you would be paying an extremely high interest rate compared to current market rates.

For example, a client of ours took out a mortgage for 220.000 € back in 2007 with a floor clause of 3.5%, but with a margin above EURIBOR of 1.25. She had been paying 3.5% when she should have been paying 1.25% for the last 6 years.

We calculated that the client had been overcharged by 23.000 € but in the end she ended up recuperating more than 27.000 € given the amount of time it took for the lender to agree to settle out of court and the compensation interest of 4% the bank had to pay on top of the overcharges.

Now that the lender has agreed to take away the “miss-sold” floor clause, this clients’ new monthly mortgage payments are now calculated on the correct interest rate of 1.25% rather than the 3.5% meaning she will continue to save thousands of EUROS per year for the rest of the mortgage term that she signed up to.

This clause was deemed unfair by the European Court of Justice and therefore all mortgage contracts with this clause inserted will be successful with their claim.

Banks however are under no obligation to refund the amounts over charged and it is generally required to take legal action against the lender in question (no S) to ensure the refund is given and the correct amount return plus interest of 4% to 6% as compensation to the injured party.

If you have been approached by your mortgage company offering you a reduction in your interest rate to 2% or above, then you could still reclaim the previous overcharges that have been levied against you.

Chances of a successful outcome are very close to 100% but each case must be studied closely and we would welcome any enquires and will advise accordingly with no financial obligation from the client.

Contact us today. – We look forward to hearing from you.

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