The new Mortgage Act has come into effect this month; a European legislation, affecting Spain, to further the protection of consumer rights, offering improved clarity and establishing a fairer distribution of costs between the client and the financial institution.
The passing of the Act will help to unblock the mortgage market after several months of uncertainty. In fact, some banks have already begun to adapt to the new legislation; assuming all the costs including the valuation, in the hope of attracting new clients. In the following months we will see how the supply of mortgages diversifies, some banks will reduce their rates while others will increase theirs. What’s important is that you compare different offers and find what’s best suited to your needs.
So, what is this Act, that has got everyone talking, all about? In this article, we will explain the new Act analysing in simple terms how it can help you.
As a customer, you’ll have more guarantees.
This new Act aims to correct past errors and reduce claims within the sector regarding matters like floor clauses, which will now be completely excluded from contracts, or the Mortgage Loan Reference Index (IRPH).
You save money
The Act sets forth a more equal distribution of costs between the client and the financial institution. The bank will bear the mortgage costs: notary, administration, registration and stamp duty. While the client will assume the costs of the valuation – unless the bank wants to pay this – as well as the costs of setting up the mortgage. On average, the saving for the client will be between 500 and 1000 euros.
The banks can continue to charge an arrangement fee, which will have a different cost determined by the lender. The new legislation dictates that this fee can only be charged once and must cover all the costs associated with the analysis, processing and granting of the loan.
On the other hand, the Act sees a 50% reduction of early repayment fees for fixed-rate mortgages (2% during the first 10 years, and 1,5% thereafter), while for variable rate mortgages, the client must choose from three, or five-year amortisation rates (0,25% and 0,15% respectively).
Furthermore, with the new Act, if the client is unsatisfied with the conditions which they signed, they can change them without being charged fees by the lender for the novation of the loan.
The conditions for eviction are softened
The steady flow of evictions in our country has been one of the social dramas of the last few years. The new regulation also seeks to influence this and noticeably softens the conditions required prior to proceeding with foreclosure. Now the bank cannot take action until the client has accumulated 12 months of missed payments, or 3% of the loan, in the first half of the contract. In the second half of the loan, the quota of missed payments prior to eviction is 15 months or 7% of the mortgage.
Lenders can’t force you to contract other products
The Act prohibits the sale of attached products. Banks can’t oblige clients to take out insurance, or any other product, as a condition for being granted a mortgage. However, lenders can offer discounts on their interest rates if the client contracts home insurance, for example.
Remortgaging will be free
Remortgaging means moving the mortgage from one bank to another. Under the new regulation the client, with loans prior to the new act, can freely remortgage their property at no cost.
The new legislation facilitates this change with the abolishment of remortgage fees that up until now have been fluctuating between 0.25% and 1%, depending on the year in which the property was purchased. To avoid a war between lenders “stealing” mortgages, the Act instils charges on the bank that is affecting the operation.
Environmentally friendly projects are rewarded
Known as green mortgages, those that are aimed at projects investing in energy efficiency, don’t require a notarised deed and can be registered at any time during the term of credit without having to pay the stamp duty.
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