- Compensation fees for variable rate loans are reduced in price, until they are canceled after five years
- Commissions for conversion from variable to fixed rate are eliminated from the third year and the notary and registration costs are reduced
- The mortgaged will receive free advice from the notary on the content of the contract for the seven days prior to signing
- The requirement for the financial institution to start executing the loan is extended to nine defaults or 2% of the capital
The Council of Ministers has approved the Real Estate Credit Bill (PL) whose objective is to reduce the expenses associated with modifications in mortgage contracts and reinforce transparency. The norm lowers the fees for early cancellation of variable rate loans until they are eliminated after the five-year term of the contract. The conversion from variable to fixed rate will not pay commission from the third year and the fees and notary fees will be reduced. During the seven days prior to signing the contract, the mortgaged must be informed of its content and of the existence of potentially abusive or opaque clauses. For the execution of a mortgage loan to begin, there must have been nine monthly defaults or 2% of the capital granted, during the first half of the life of the loan.
The rule is now being sent to Congress to start parliamentary processing and has broad political consensus. It is the result of the transposition of the European Directive on Credit Agreements concluded with consumers for real estate for residential use, although in some aspects it goes further with the aim of reinforcing legal certainty and the contractual balance between lender and borrower. Specifically, the PL includes incentives for the transformation of mortgage loans that go from variable to fixed and is more ambitious in terms of reinforcing transparency requirements. In addition, the Directive limits the scope of application to consumers, while the approved PL extends it to the self-employed.
The reduction in commissions contemplated in the regulation approved by the Council of Ministers focuses on early cancellation operations and the conversion of contracts at variable rates that become fixed. In the case of the cancellation commission, the new percentages are applied to mortgages signed after the new Law came into force, while those related to the conversion of variables to fixed ones affect live mortgage contracts. Also for the contracts in force, it is extended to nine unpaid monthly installments or to an amount that exceeds 2% of the capital granted, the requirement for the financial institution to start executing the loan during the first half of its term. During the second half, the percentage is 4% or 12 unpaid monthly installments.
The cancellation fee for variable rate loans will be zero from the fifth or third year of the contract, depending on what has been agreed. In the first case (five years), the limit will be 0.25% of the capital paid up in advance. In the second (three years) it will be 0.50%. Currently, these percentages are 0.50% of what is amortized in advance, if it occurs within the first five years of the contract, or 0.25% if it occurs at a later time. In the case of fixed-rate loans, the maximum percentages that the PL establishes will be 4% of the amount advanced if it is made in the first 10 years and 3% if it is later. Currently there is no legal limit for fixed rate loans.
The incentives for conversion to fixed interest rates on real estate loans are higher than those for cancellation fees. The maximum commission will be 0.25% of the capital pending amortization if the novation or subrogation of the loan occurs during the first three years of the contract and zero if it occurs afterwards. In addition, the fees of notaries and registrars that would correspond to those in force for a document without amount (about 30 euros) and a minimum registration (about 24 euros) are reduced.
The Directive also contemplates the possibility that the consumer may request at any time during the life of the loan the conversion – in euros or in the currency in which he receives most of the income – of the credit in foreign currency, and as such transferred to Spanish regulations. On the other hand, so-called linked sales are generally prohibited, that is, those that oblige the consumer to accept a series of financial products as a condition for obtaining the mortgage. With the new norm, financial institutions will have to offer consumers alternative offers; that is, with or without associated products. In these combined sales, the financial entity will report the different budgets, as a mandatory transparency measure.
Improving transparency is one of the pillars of the new Real Estate Credit Law. In the pre-contractual phase, the lender must deliver to the client, with a minimum of seven days' notice before signing the contract, detailed documentation on the binding offer for the entity, on the existence of potentially sensitive clauses, scenarios of evolution of fees depending on of forecasts on interest rates and associated insurance. During those seven days prior to signing the contract, the notary will advise free of charge and verify by record that the consumer has received and understands the legal and economic consequences of the contract to be signed. This is a necessary condition for the notary to authorize the deed.