What do the new regulations mean clients (the borrower)?
One of the many advantages to the client is that they can now choose which valuation company values the property they are buying for mortgage purposes. As long as the company is approved by the Bank of Spain, the valuation should be accepted, however, we have heard from one bank that they will instruct a second valuation to verify the first one, so it remains to be seen how this will work in practice. We all know a poor valuation can result in a sale falling through, so this is potentially a huge breakthrough, as clients are no longer restricted to the bank's own panel of valuation companies. Valuations can vary considerably from one company to another, so if you are familiar with a company who you feel gives consistently reasonable valuations and knows the local area well, please let us know.
Other advantages include lower set-up costs, lower early redemption penalties, control over any rise in interest rates (the mortgage rate can never be increased by more than 3%) and a ban on forcing clients to contract add-on products (such as savings plans, pension plans, etc.) in order to qualify for a discounted mortgage rate. Banks now also have to wait for up to 24 months of payment defaults before they can repossess a property.
One aspect of the new law that could potentially be seen as a disadvantage is the introduction of a new cooling-off period, similar to the 15-day one that already exists in Catalunya. Under the new law, which applies nationally, the client must sign the new FEIN mortgage offer document and then at least 10 days must pass before they can complete the purchase. In addition to this, the client is supposed to attend the notary office in the 10 days before completing the purchase and not less than one day before, in order to complete a test to show that they understand the terms of the mortgage and also the property purchase. Lawyers might be able to attend one or both of these meetings at the notary on behalf of their clients, but under strict conditions, and up to now all of our clients who have completed since the law change have attended both meetings at the notary.
Another important change concerns the currency of a potential borrowers' earnings. Under the new law, if a mortgage holder has earnings in any currency other than Euros and that currency drops in value against the Euro by more than 20%, the mortgage holder has a legal right to request that the mortgage converts from a Euro denominated mortgage to one in the currency of their earnings. The banks see this a high risk and we are seeing them react to this in different ways. One bank is no longer offering mortgages to those not earning in Euros, while others are no longer offering fixed rates to these applicants and others are telling us there is no change, so we are seeing both extremes in terms of the reaction to this new rule.
How have the new laws affected the mortgage market in general?
In summary, borrowers are now afforded far greater protection and face much lower set-up costs, which must surely be welcome? The downside is that the process has become more complex and with the banks feeling the pinch, we may well see further increases to interest rates and/or higher opening commissions to compensate them for their reduced profits on mortgages. We will be watching the situation very closely over the coming months and will be back in contact in September to share further insights with you.