• The early repayment commissions of variable rate loans are reduced, until they are canceled after five years
  • Fees for conversion of variable to fixed rate are abolished as of the third year and notary and registration expenses are reduced
  • The mortgaged person will receive free advice from the notary on the content of the contract during the seven days prior to signing
  • The requirement for the financial institution to begin the execution of the loan is extended to nine defaults or 2% of the capital

The Council of Ministers has approved the Bill of Real Estate Credit (PL) whose objective is to reduce expenses associated with modifications in mortgage contracts and strengthen transparency. The standard 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 a variable to a 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 the signing of the contract, the mortgaged party must be informed of its content and the existence of potentially abusive or opaque clauses. For the execution of a mortgage loan to begin, nine monthly defaults or 2% of the capital granted must have occurred during the first half of the life of the loan.

The rule is now sent to Congress to begin parliamentary proceedings and has a 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 objective of strengthening legal certainty and the contractual balance between lender and borrower. Specifically, the PL includes incentives for the transformation of mortgage loans that go from variables to fixed and is more ambitious in terms of strengthening transparency requirements. In addition, the Directive circumscribes the scope of application to consumers, while the approved PL extends it to the self-employed.

The reduction of the commissions contemplated by the norm approved by the Council of Ministers focuses on early cancellation operations and the conversion of contracts at a variable rate that become fixed. In the case of the cancellation fee, the new percentages apply to mortgages signed after the new Law enters into force, while those related to the conversion of variables to fixed ones affect living 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 entity to begin the execution of 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 as of 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 disbursed in advance. In the second (three years) it will be 0.50%. At present, these percentages are 0.50% of the amount amortized in advance, if this 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 established by the PL will be 4% of the anticipated amount if it is made in the first 10 years and 3% if it is later. At present 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 outstanding capital if the novation or subrogation of the loan occurs during the first three years of the contract and zero if it occurs later. 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 moved to Spanish regulations. On the other hand, the so-called related sales are prohibited, that is, those that force the consumer to accept a series of financial products as a condition for obtaining the mortgage. With the new standard, financial institutions must present alternative offers to the consumer; that is, with or without associated products. In these combined sales, the financial entity will report the different budgets, as a mandatory transparency measure.

The improvement of 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, at least seven days in advance of the signing of 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 the signing of 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.

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