On March 15th, a new Law 5/2019 was adopted to regulate immovable property credit contracts. That is to say, mortgage transactions for the purchase of residential immovable property. These new regulations align Spanish legislation with the provisions laid down under the European Directive.
Regarding entry into force, it should be noted that the new regulations entered into force as from June 16th 2019.
This new Law aims to fully protect the consumer or mortgage borrower, and is of an imperative nature. That is to say, all terms and conditions that financial entities may negotiate or impose not in compliance with the regulations established in the new mortgage law, shall be declared null and void.
Procedures and timeframes for signing new mortgages
The consumer should receive all pre-contractual documentation at least ten days in advance of signing the public deeds for the loan. The ten-day period is essential, if there is evidence that a mortgage has been signed without allowing this timeframe, it shall be declared null and void. Therefore, all documentation related to the loan shall be provided at least 10 days prior to signature of the mortgage.
During the aforementioned ten-day period (the time period which should elapse from the official submission of the pre-contractual documentation to signature of the corresponding public deeds) the client should seek prior free advice from the notary public. The notary public shall provide information regarding the specific clauses contained in the European Standardised Information Sheet-ESIS (Ficha Europea de Información Normalizada-FEIN) and the Standardised Warning Sheet (Ficha de Advertencia Estandarizada- FiAE) on an individual basis, and will draw up the minutes thereof, as proof of the advice provided and affirmation that the borrower has understood and accepts the content of the documents.
The aim of the European Standardised Information Sheet-ESIS (Ficha Europea de Información Normalizada-FEIN) is to provide more clarity and understandability to the pre-contractual or financial information which the consumer should receive at least ten days in advance of signature. We will outline and discuss the key elements.
Once the notarial act corresponding to the pre-contractual consultation has been signed and drafted, the so-called contractual phase begins, during which the purchase and mortgage deeds are signed, generally simultaneously.
Therefore, it is necessary to attend the notary on two separate days, firstly to receive information and advice, and secondly for signature of the contract. Regarding this aspect and given the inconvenience that attending a notary on two separate days may cause for foreign purchasers not residing in Spain, together with the requirement of compliance with the timeframes previous to signature, we must highlight the fact that by granting power of attorney, duly limited, the appointed representative or attorney can carry out both the pre-contractual consultation, and signature of the mortgage deeds on your behalf. At MSG LEGAL our lawyers with expertise in Property Law can advise you on this particular point, integrated in our Conveyancing service in Spain.
Documentation that should be provided by the financial entity to consumer and submitted to the Notary
During the phase prior to the pre-contractual consultation, and of course, the mortgage signature, the financial entity must submit the newly required documentation. As mentioned above, said documentation comprises the European Standardised Information Sheet-ESIS (Ficha Europea de Información Normalizada-FEIN), and the Standardised Warning Sheet (Ficha de Advertencia Estandarizada- FiAE).
The ESIS (FIEN) document contains personalised information regarding the credit agreement (such as the interest rate the creditor will charge, the amount, duration and currency of the loan), whereas the Standard Warnings Sheet (FiAE) document contains details of the clauses (such as the conditions for early repayment, or the distribution of expenses associated with the loan).
The financial entity should also provide an illustrative amortisation table indicating the interest rate of the loan, in addition to the amount and periodicity of the repayment instalments, and a simulation of how the interest rate of the mortgage instalments may vary according to a range of scenarios of interest rate fluctuation.
Finally, the document should reflect the expenses associated with the public deeds for the loan.
All of this information shall be submitted electronically by the financial entity to the notary.
As a general rule, the law prohibits tying practices in connection with granting and contracting mortgages. However, it does permit the application of discounts between the differential of borrowing rates and each product contracted.
In the case of home insurance, the consumer or beneficiary may present an insurance policy from another company, granted that the conditions are the same or improved, and the financial entity will have to accept such a policy without worsening the loan conditions offered.
Arrangement or completion fee. This fee is not prohibited by law.
Fees for changing or modifying the terms and conditions of mortgages. If the change or modification is carried out by subrogation or transfer to another financial entity, or by contract substitution with the existing entity, the fees shall not exceed 0.15% of the capital repaid in advance during the first three years of the contract term.
Following that period, financial entities are not entitled to charge any fees.
Exit or closure fees. If the consumer wishes to return all or part of the loan before the agreed term, the law states that in the case of fixed rate mortgages the fee shall not exceed 2% of the capital paid in advance, not the pending amount, during the first ten years, and as from the tenth year onwards, the fee shall not exceed 1.5%. In the case of variable mortgage rates, the fee shall not exceed 0.25% of the capital paid in advance during the first three years of the contract term, or 0.15% of the capital paid during the first five years.
A very important aspect to consider is how the expenses generated in connection with signature of the public deeds for the credit agreement should now be distributed.
Until the new regulations entered into force, the consumer was liable for payment of fees corresponding to the Administrative Agency, Notary, Land Registry and mortgage valuation. As from June 16th the financial entity is liable for payment of Administrative Agency and Notary fees, and the Land Registry fees for the inscription of the property. The consumer is liable for payment of the mortgage valuation and may use the Authorised Appraisal Company/Surveyor of their choice, there is no requirement to use the same company as the financial entity with which the mortgage is signed.
Stamp Duty on the loan shall be payable by the financial entity.
At MSG LEGAL as expert lawyers in the field of Property, and as part of our CONVEYANCE service, we can provide you with comprehensive advice on contracting and formalising mortgage loans.
We will carry out a detailed assessment to protect your interests and assure that all terms and conditions established under the new mortgage law are complied with. Equally, we can act on your behalf with Power of Attorney during the entire process of formalising the loan.
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.