The impact of Spain’s new mortgage legislation on homes

The new mortgage legislation in Spain has taken effect Here’s all you need to know about it.

After a two-year delay, Spain’s new mortgage regulations took effect this month. These regulations result from an EU directive aimed at harmonizing mortgage legislation across EU member states and improving mortgage issuer conduct.

Spain’s mortgage regulations favored banks and were frequently harsh on borrowers in the past. The new legislation is fantastic news for homeowners and anyone looking to buy a house in Spain.

Continue reading to learn about the adjustments that will have the most significant impact on borrowers.

Before repossession, there is a more extended default period.

This is excellent news for landlords. Previously, Spanish mortgage legislation allowed lenders to begin foreclosure proceedings if borrowers fell three months behind on their payments.

Furthermore, the present three-month restriction is a relatively new addition. Lenders might seize property during the 2008 financial crisis if a borrower missed only one monthly mortgage payment.

The new mortgage regulations in Spain specify that:

  • Lenders cannot repossess a home during the first half of the mortgage term unless the borrower is 12 months behind on their payments or their arrears equal more than 3% of the total capital lent.
  • Lenders cannot repossess a home in the second half of the mortgage term unless the borrower is 15 months behind on their payments or their arrears are more than 7% of the total capital lent.
  • Late payment fines are limited to 3% of the outstanding balance. Late payment penalties may have been as high as 12% before the current mortgage legislation.

Banks are paying more mortgage costs.

For borrowers, this is another game changer. The following costs are linked with a Spanish mortgage:

  • Payments made to a gestor. Gestor costs are often a few hundred euros.
  • Notary fees are paid to the Notary.
  • Fees paid to the Registrar of Deeds. Fees to the Notary and the Land Registry usually are approximately 10% of the property value.
  • Mortgage tax, or AJD (Actos Juridicos Documentados). DEPENDING ON WHERE YOU LIVE, the AJD may be up to 2.5 percent of the property value.
  • The cost of valuing a property. This is usually 0.1 percent of the property’s worth.
  • The cost of obtaining a mortgage. This equates to 1.5 percent of the property’s worth on average.

Previously, the borrower was responsible for ALL of the charges above. Except for the property appraisal charge and the origination fee, all expenses above must now be paid by lenders under Spain’s new mortgage regulations. As a result, banks have gone from paying none to spending the bulk of mortgage expenses.

Borrowers may no longer be forced to buy additional items by their lenders.

Cross-selling is a specialty of Spanish banks. Before providing a mortgage, they used to ask applicants to acquire life and house insurance. They must now enable borrowers to take insurance from third-party providers. Furthermore, if a third party provides the insurance, they cannot threaten to increase the interest rate.

The ‘floor clauses’ will be eliminated.

Lenders used to impose a floor on variable rate mortgages before Spain’s new mortgage rules. They gained more money if interest rates went up, but they were protected if interest rates went down. The existing floor is 0% of the mortgage rate (not EURIBOR).

Because a mortgage interest rate is usually greater than EURIBOR, this offers extra safety for borrowers. This is especially important in the present climate since EURIBOR is now negative.

Borrowers will be able to convert mortgages denominated in foreign currencies into euros under Spain’s new mortgage legislation.

Bank customers who hold mortgages in currencies other than the euro can convert their loans to euros at any moment. Additionally, banks must notify their customers if their overall debt increases due to currency movements regularly.

If the bank fails to meet the following standards, the contract will be ruled invalid. The borrower might, for example, demand that their mortgage be changed to euros retrospectively and that any overpayments in the other currency be subtracted from the mortgage’s pending capital.

Borrowers will save money if they pay off their mortgages in the middle of their term.

Early repayment costs are less expensive and can only be calculated if the bank loses money if the loan is paid early. Repayment costs have been decreased from 0.5 percent within five years of taking up a variable rate mortgage to 0.25 percent within three years and 0.15 percent within four to five years after taking out the mortgage. There will be no cost if the loan is repaid after five years.

Furthermore, unlike in the past, banks will no longer be allowed to postpone the early repayment. The maximum notice time a bank may require under Spain’s new mortgage legislation is one month. Banks have three working days to analyze the demand and supply the necessary information after receiving notice of intent to repay the mortgage.

Converting a variable-rate mortgage to a fixed-rate mortgage will be less expensive.

According to Spain’s mortgage legislation, banks may charge 0.15 percent to convert a variable rate mortgage to a fixed rate. Only the first three years of the mortgage may be evaluated. Following that, the cost is 0%. However, the borrower must pay the corresponding notary and Land Registry expenses.

Consumers will be better protected.

A variety of additional criteria are included in the new rules to safeguard consumers. The most important are:

  • A FEIN will replace the conventional mortgage offer paperwork, a FIPER. It will enable borrowers to shop around for mortgages since it is far more thorough and transparent than the FIPER. If the loan is a variable rate loan, the borrower will also get a supplementary document describing the impact of interest rate swings.
  • There will be a ten-day “cooling down” phase. Borrowers must wait ten days between acquiring a FEIN and signing the loan agreements.
  • Borrowers must pass a brief exam before the notary to verify that they understand the mortgage process.
  • The Banco de Espaa will establish a new organization to handle complaints and claims relating to mortgages.
  • All commissions paid to lenders in exchange for mortgages must be adequately disclosed.


The new mortgage regulations in Spain are a welcomed addition. They would safeguard consumers and promote the housing market since many Spaniards are now afraid of taking out a mortgage and the costs that come with it. Additionally, the foreign currency conversion clause provides ex-pat borrowers with extra security.

Edward K. Thompson