• A large parliamentary majority validates the Royal Decree
  • 95% of banks have reported their adherence to the Code of Good Practice in this area

The Plenum of the Congress of Deputies has validated in its session today the Royal Decree for the protection of mortgage debtors without resources by a large majority. The measure has received 201 votes in favor and 109 against. As explained by the Minister of Economy and Competitiveness, Luis de Guindos, during the processing of the Royal Decree, the objective is to alleviate the "dramatic" effects of the crisis for those families who, due to their unemployment or lack of income, cannot do against their mortgages.

The decree establishes the conditions that give access to the group to protect (exclusion threshold) and a Code of Good Practice for banks in this area. This code is of voluntary adherence but its compliance is mandatory for two years for those entities that adhere.

So far, 95% of the banking entities that operate in the Spanish mortgage market have formally notified the General Secretariat of the Treasury and Financial Policy of their adhesion, so the code will favor the vast majority of the mortgaged in difficulties. The deadline for entities to communicate their membership ends tomorrow. The final list of affiliated banks will be published before April 10 in the BOE and on the website of the Public Treasury.

Within the exclusion threshold established by the Royal Decree are those debtors who meet the following conditions: that the mortgage payment is greater than 60% of the net income received by the entire family unit, that it is the first and only home and that all family members lack income derived from work or economic activities. They must also lack capital assets with which to face this debt. All debtors within this threshold will be able to benefit from the measures contained in the Code of Good Practice. The rule also contemplates a moderation of default interest rates, which in many cases were clearly abusive.

The Code of Good Practice will be applied in the following phases:

  1. Mortgage debt restructuring: Debtors in the scope of foreclosure may request the entity to restructure their mortgage debt that makes their payment viable and must be submitted within one month. This plan must include a deficit in the amortization of capital of four years, the extension of the amortization period to 40 years and the reduction of the interest rate applicable to Euribor + 0.25 points. Debtors whose execution procedure has not started may request the restructuring.
  2. Complementary measures: If, despite the refinancing, the payment of the debt is unfeasible, the debtor may request a withdrawal in the capital pending amortization. Any restructuring that involves a mortgage payment of more than 60% of its income will be considered unfeasible. Those who are in execution procedure may request the removal, provided the auction has not been announced.
  3. Substitute measures: If neither of the two previous phases is successful, the debtors in the scope of exclusion may request the dation in payment of the house. It will mean the total cancellation of the debt with the delivery of the house, along with the personal responsibilities of the debtor. The debtor may remain a minimum period of two years as a lessee, paying an annual income equivalent to 3% of the amount of the outstanding debt. During said term, the non-payment of the rent will accrue a default interest of 20%. The dation in payment will not be applicable when the execution procedure has concluded or if the home is taxed with subsequent charges.

The monitoring will be carried out by a Control Commission that will include a representation of the Spanish Mortgage Association, the Bank of Spain, the CNMV and the Secretary of State for the Economy. The Control Commission will publish a semi-annual report on the degree of compliance with the Code.

In addition, the Royal Decree adds other measures of a fiscal, procedural and housing aid nature. Among the former, a series of tax benefits have been established. Debtors who, due to the payment of their home, obtain a capital gain, an exemption has been established in the personal income tax. For its part, the financial institution may deduct in the Corporation Tax the loss it assumes in cases of payment in kind. There will also be other exemptions in the matter of Documented Legal Acts and the notary and registry tariff rights will be reduced by 50%.

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