ALTERNATIVE FINANCEING: IT IS RECOMMENDABLE TO DIVERSIFY OUR SOURCES OF FINANCING: LOANS BY ENTITIES OTHER THAN BANKS OR BANKING ENTITIES: PROPERTY LOAN AGREEMENTS
- Act 5/2019, of 15 March, regulating property loan agreements
Act 5/2019, of 15 March, regulating property loan agreements, aims to incorporate into Spanish law the protection system provided under Directive 2014/17/EU of the European Parliament and of the Council, of 4 February 2014, regarding credit agreements entered into with consumers for residential property, and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No. 1093/2010.
This law applies to agreements entered into by borrowers with natural or legal persons who are professionally engaged in:
- Granting loans or credit secured by a mortgage on a residential property. This concept includes storage rooms, garages, and any other that, without constituting a dwelling as such, fulfil a domestic function;
- Granting loans or credit whose purpose is the acquisition or conservation of land or buildings, already constructed or pending construction;
- Intermediation to enter into of one of the above types of agreement.
However, the Act shall not apply to credit agreements:
- Granted by employers to their employees, on an ancillary basis and free of interest, or whose annual percentage rate of charge is lower than the market rate, and which are not offered to the general public;
- Granted free of interest and without any other type of cost, except those intended to cover costs directly related with the loan guarantee;
- Granted as an overdraft facility and to be repaid within one month;
- Loan contracts resulting from an agreement reached in court, in an arbitration body or in a conciliation or mediation procedure;
- Loan agreements relating to the deferred payment, free of charge, of an existing debt, provided that they are not loan agreements secured by a mortgage on immovable property for residential use;
- Reverse mortgage agreements
The provisions set forth in Act 5/2019 and its implementing rules are generally binding rules and cannot be a matter for any arrangement and, consequently, of any agreement otherwise by the parties,
- Standards of conduct in entering into property loan agreements
The lender is obliged to provide the borrower with a standardised sheet showing all the characteristics of the loan before it is signed (European Standardised Information Sheet or ESIS), which shall be a binding offer for a period of ten days.
In addition, the staff who assess creditworthiness and commercialise property loans must have a training level that ensures the borrower receives adequate information tailored to his or her needs.
Tying practices are prohibited, although bundling practices are allowed.
The borrower is entitled to repay all or part of the loan with no further fees or compensation to the lender other than the financial loss for a period and up to legally stipulated percentages.
The consumer’s right to convert the loan denominated in foreign currency into the currency in which the borrower receives his income or that of the Member State in which he resides is regulated for the first time in Spanish law as a mechanism to hedge and protect against exchange rate risk.
- Transparency measures
Together with the Standardised Pre-contractual Information Sheet (ESIS), the borrower shall be provided with a Standardised Warning Sheet (FiAE in its Spanish abbreviation) informing him/her of the existence of relevant clauses or elements (“floor clauses”, possibility of early maturity, distribution of expenses associated with granting the loan and foreign currency loans) and the risks associated with them.
In the case of a variable interest rate loan, the lender is obliged to provide the borrower with a separate document, with special reference to the periodic payments to be made by the customer, in different scenarios of interest rate evolution.
- Control by notaries and registrars
Review of lawfulness carried out by notaries and registrars regarding the agreement’s content is strengthened, such that the deed shall not be authorised if the lender does not demonstrate, in particular, that the pre-contractual information has been provided to the borrower ten days before. During these ten days, the notary shall advise the borrower on the draft property loan agreement and, in particular, on the contractual clauses contained therein.
This advice, together with the borrower’s written statement that the pre-contractual documentation has been provided to him/her and that he/she understands and accepts its content, shall be documented in a notarial act, which shall be free of charge for the borrower.