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New Mortgage Law by Brilliant Real Estate

27 June 2019

New Mortgage Law

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A significant number of buyers who purchase a new development villa on the Costa Blanca need financing to carry out the transaction. This is even true in the case of foreign buyers, a sector that tends to resort to Spanish banks to arrange their loans.

The New Spanish Real Estate Loan Law came into effect on the 16th of June 2019. Although it has received a lot of attention in the Spanish media over the last few days, it hasn't had the same impact on international media outlets.

How does the new law affect foreign buyers?

But how does the new mortgage law affect the foreigners who decide to buy a new development home in Spain? Today, we wish to focus on this group of buyers to explain in a simple way the changes they will find in the new mortgage loans.

To take a more in-depth look at the costs involved in buying a New Development home on the Costa Blanca, you can download the following infographic:

Nueva llamada a la acción

Fewer loan arrangement costs.

The distribution of costs associated with the mortgage changes. To avoid abuse on the part of the banks, the arrangement costs for loans taken out as of the 16th of June 2019 will be distributed in the following way:

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Lower commissions for repayment

The following maximum limits for commissions on early repayment have been established:

  • Fixed rate mortgages: 2% in the first 10 years of the loan and 1.5% as of the eleventh year.
  • Variable rate mortgages: 0,25% in the first 3 years of the loan and 0.15% as of the fourth year.

Likewise, with the new mortgage law, the client will be able to subrogate their mortgage without additional costs. The two banks involved in the subrogation will have to set up a compensation mechanism based on the interest that has already been paid and that which has yet to be paid.

Goodbye floor clauses

There is no longer room for floor clauses in the new regulations. Therefore, if the Euribor falls, the mortgage installments will also fall, however they can never be less than 0. This means that the client will never be able to receive money from their bank, even if the interest rate reaches negative figures.

Limitations on linked products

The bank will still be able to insist on property insurance or a policy to guarantee repayment of the loan, however they will never be able to force the client to take out the aforementioned insurance policies with the bank itself. Contracting of products linked to the mortgage will always be voluntary.

* Note: the banks will still be able to charge arrangement fees for formalisation of real estate loans.

Greater transparency

At least 10 days in advance, the bank must provide the buyer with the following documents:

  • European Standardised Information Sheet, with all the details relating to the mortgage.
  • Standardised Warnings Sheet, with the most relevant clauses in the contract and the indexes used to calculate the interest rates.

As well as this new documentation, the client will have an obligation to attend the Notary twice. Once on the day of signing, and once 10 days beforehand for the Notary to inform them in a simple manner on the most sensitive paragraphs of their contract.

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What does all of this mean?

Although a priori, the new Spanish mortgage law could be beneficial for new mortgage holders due to the greater security and transparency and the lower amount of savings they will need to access their loans, in the long term this new regulation could make mortgages more expensive.

Over the last few months, we've noticed that the main Spanish banks have increased the interest rates on their mortgages to cover the extra costs they will have to take on. Plus, they will always be able to continue to play with the arrangement fees.

If you wish to buy a new development property on the Costa Blanca but you're not sure how to go about arranging your mortgage loan, at Modern House we have a specialist team in sourcing and managing loans at your disposal who specialise in international buyers.

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