Will Non-Residents be denied a Mortgage?

The new Law on Mortgage 15/2019 of March 15th of this year casts doubt on the possibility of obtaining a loan by non-residents of Spain.

This law is obliged to adapt the EU Directive, the purpose of which is to increase the degree of consumer protection in concluding  mortgage lending.

Let’s start with the most important point, which concerns, first of all, foreigners.

Article 20 of the new Act gives the right to the borrower in the contract to convert the value amount of mortgage loan in the currency in which it gets its main income or in the currency of the country of tax residence. Of course , the government are looking out for its people – to protect consumers from the risks of exchange rate jumping in which they receive their main income.  Banks are well aware of the risks associated with this innovation, and therefore the likelihood of approving a mortgage request for non-residents is sharply reduced ! This will especially affect non-residents of Spain from countries with weak currencies compared to the euro.

And to influence the decision of the bank even more, a mortgage loan is a product that can be granted or not at the discretion of the bank .

In this case, we can assume that now to get a mortgage, foreigners will have to get a residence.

Innovations have caused serious excitement in all financial institutions of the country, real estate agencies and even the construction sector. Indeed, in addition to the points that facilitate the process of obtaining mortgages and some nuances protecting the government, the new law should bring order to the mortgage market: increase the transparency of the process, provide customers with more information about products and conditions, improve the choice of the optimal option.

Other innovations, of course, will  only please future borrowers, because the law is really abolished by unprofitable, non-transparent nuances.

For example:

  • Cancellation of compulsory insurance from the bank

Previously, when applying for a loan, the bank in a mandatory form “recommended” to customers to buy insurance – at home, life, and the conditions and the cost, as a rule, were far from advantageous. In addition to regular payments on the loan, the cost of additional products was added. Now the law prohibits banks from obliging to purchase any additional services when granting a mortgage loan, or if they really are profitable.

  • The abolition of unfair provisions

The new law seriously rises to protect borrowers. If the contract contains details entered as if “between the deadline”, and the client, without having understood them, turned out to be the injured party, these conditions will be abolished.

  • Client protection in case of late payments

Borrowers faced with financial difficulties, thanks to the new law may breathe a little. Now the bank has the right to begin the procedure of  imposing arrest due to non-payment only if payments are delayed for more than 12 months or when the amount of debt exceeds 3% of the loan amount – in the first half of the contract term, or after 15 months if the amount exceeds 7% in the second half.

In addition, when the deadlines have passed, the bank is obliged to warn the client and offer another month to start paying off the debt before initiating the early repayment clause due to non-payment. This measure will also apply to old mortgage contracts.

  • Permanent and unchanged amount of interest

Under the new law, the penalty will become unchanged and will total to an amount equal to the sum of the interest rate and 3%.

  • Simplify contract rate changes

Change the mortgage with a floating rate to a fixed rate will be easier. Commission for transfer will be 0.15% of the amount of payments for the first three years of the contract, and if the transfer is made after 4 years – 0%.

  • Independent assessment of the value of the object

Now, an  independent expert or intermediary in the field of real estate lending by a client, a member of the appraisal service of a credit organization with reliable standards of appraisal factors that are recognized by the international community , and not a bank employee, will assess the value of the property .

  • Mortgage costs

Now the client pays for the services of a real estate appraiser,  since, as was said in the previous paragraph, he must be on the client’s side, independent of the bank. The bank, in turn, covers the costs of the transaction, notary fees for the mortgage contract and the entry of data into the Property Register.

  • Early repayment fee will be reduced

The law establishes limits on fees that banks may charge for the early full or partial repayment of a loan. The floating rate mortgage was subject to a limit of 0.25% in the first three years from the date of signing the contract, 0.15% – from 3 to 5 years of the contract.

Mortgages with a fixed rate after discussions, it was decided to levy 2% for the first ten years, and later – 1.5%, in contrast to the originally proposed 4% and 3%, respectively.

  • Obligatory appeal to the notary before the conclusion of the mortgage contract

Now, before agreeing to a mortgage, the client is obliged to apply to the notary no later than 1 day before signing the mortgage contract, so that the latter will check whether the document of the contract complies with the law and the interests of the borrower. In turn, the bank is obliged to issue a contract to the client no later than 5 days before the date of signing. After approval by the notary, the client signs the paper that all points are clear to him and he agrees with them, and  only then can he go to the bank. If this is not done, the notary must draw up a deed and the mortgage agreement cannot be concluded.

  • Tightening solvency check

Now every applicant for a mortgage in Spain will be expected to have a more thorough check. The Bank will study the client’s credit history, in particular, contact the Risk Information Center of the Bank of Spain, where the entire history is concentrated – previous loans, debts, dates, terms, existing guarantees.

From the date of publication of the Law in the official bulletin  (BOE), the  bank has three more months to fully adapt to the new rules, to introduce innovations at all levels.

Of course, it will be possible to unequivocally assess the new law only with time, when its points will be “tested” many times in real life. For both banks and customers, only experience will help to understand how effective the work was  done , and which items, on the contrary, only complicate the situation and are disadvantageous for both parties. We will monitor the situation and keep you informed.

Contact us for advice if you plan to buy property in Spain, we will be happy to ensure the security of the transaction and protect your legal interests.

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