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As from 16th June 2019, the new mortgage legislation will come into force, according to which, and in line with European directive 17/2014, the mortgage holder will be better protected and the mortgage creditor will have to take more precautions given the obligation to be informed about the solvency of the debtor (Article 12. Information concerning the solvency of the potential borrower).
Among the most important new developments we should point out that notary public, registry and handling expenses (formalisation costs), as well a mortgage tax, shall become the responsibility of the mortgage creditor. For the average mortgage, it is estimated that savings of around Euro 2,500 can be made.
Other common practices such as obligatorily associating the mortgage to other bank products such as credit cards, life insurance or pension plans shall be prohibited as from the entry into force of the regulation. However, it is permitted for the mortgage creditor to require insurance related to the fulfilment of mortgage obligations, but the application of bonuses on the loan differential for each product contracted with the mortgage creditor is not allowed.
The access to fixed-rate mortgages is also promoted by limiting the fee for changing to this type of mortgage (conversion fee) to 0.15%. The subrogation of the mortgage from one mortgage creditor to another must leave the mortgage holder unharmed, and the creation of compensation mechanisms between financial entities that are in this situation is anticipated.
On the other hand, a period of 10 days is established before executing the public deed so that the client can properly analyse the text, in addition to being duly advised and informed of the conditions. Along with the deeds, several other documents will be provided, such as references on the advice that the notary must provide free of charge, the European Standardised Information Sheet (ESIS), the Standardised Warning Sheet, documentation with simulations of the payment instalments and, where these are variable, their variation over time, a breakdown of all the costs involved in the final signature, clear information on the costs that correspond to the bank and the client, the conditions of the insurance guarantees required and information on the free advice that the notary must give to the client.
No less relevant is the introduction of the regulation on multi-currency mortgages, whereby the mortgage holder may request the conversion of the mortgage into Euro at any time, with any amount paid in the original currency having to be subtracted from the outstanding capital. In this sense, if the public deed of the mortgage stipulated otherwise, the contract would be null and void.
Broadly speaking, most of the legal reform has no retroactive effect. Only the provisions that promote the conversion of the mortgage to a fixed rate, as well as the articles on the application of the early maturity clause, may be applied to contracts signed prior to the entry into force of the law. In view of the provisions of the law, we are awaiting the establishment of a new body responsible for the resolution of consumer disputes in the financial sphere.
Finally, the notary now has the duty to check that the mortgage holder understands what is being signed, including the European Standardised Information Sheet (ESIS) and the Standardised Warning Sheet (art. 15.2(c)). Otherwise, the public deed for the loan may not be authorised under any circumstances.
For more information, please contact
Ignacio de la Vega
Barcelona, 12th April 2019