GREATER PROTECTION TO BORROWERS UNDER THE NEW MORTGAGE ACT

On 16 March 2019, Act 5/2019 of 15 March was published, regulating property loan agreements, which came into force on 16 June 2019 and represents a substantial reform of the old regulation of property loans or credit (in particular, mortgages).

What is the main objective of this reform?

• CONSUMER PROTECTION à following major controversies in this area between banks and consumers (“floor clauses” – now a 0% rate by default – mortgage expense clauses…). One of the most important changes in this respect is: DISTRIBUTION OF MORTGAGE EXPENSES (the client only pays the appraisal and the copy of their title deed).

WHAT ARE THE ACT’S MAIN INNOVATIONS?

STRENTHENING OBLIGATIONS REGARDING TRANSPARENCY

• Pre-contractual stage (including advertising)

All these prerequisites are applicable uniformly throughout Spain, so the Autonomous Regions shall have to adapt their standards to requirements at a national level.

Article 6 Mortgage Act (MA) àAll information must be DETAILED, LEGIBLE and EXEMPLIFIED.

Article 10 MA à Information must be PERSONALISED for the borrower (via the EUROPEAN STANDARDISED INFORMATION SHEET and STANDARDISED WARNING SHEET).

Article 14 MA à All necessary information must be provided to the borrower 10 days before the decision is made.

Two visits to the Notary Free of charge

                                                                                                                                                                                                             

• Stage before the Notary, documentation review

Article 15 MA à Notary’s advice and verification of supporting documentation. A “security” test is performed by the borrower. Furthermore, the lender

must inform the borrower and give appropriate explanations and clarifications regarding the effects and necessary charges arising from the loan.

THE OBLIGATION TO ASSESS SOLVENCY AND THE CONSEQUENCES OF NON-COMPLIANCE

Directive 2014/17 calls for these loans to be granted once the solvency of the borrower is ensured and not before.

Any unfair clauses included or in breach of the regulations shall be NULL AND VOID.

Article 11 MA àIt is obligatory to carry out a solvency assessment IN DEPTH, through internal procedures specifically developed to perform the solvency assessment. An incorrect solvency assessment does not entitle the lender to make any kind of modification to the credit agreement. EXCEPT when the borrower has concealed or falsified any of the information.

Article 44 MA à“ The obligations laid down in this Act and its implementing regulations shall be treated as regulations of management and discipline”.

Consequences:

• The loan shall not be granted if the solvency test is not passed.
• An incorrect assessment shall not allow the credit agreement to be modified.
• Non-compliance with the solvency obligationà application of the penalty system.
• Tying practices are prohibited (discounts are allowed)
• Modification of the following regulations:

 

Articles MA	Modification
12 MA	Include the early maturity clauses and other financial clauses in the registry entry.
114 MA	Include default interest rate on loans granted to natural persons guaranteed with a mortgage on residential property (interest + 3 points).
129.2 (a) MA	In the event of an extrajudicial sale of the mortgaged property, the value to be used as a rate in the auction may not be less than as set forth in the appraisal (previously, it was only required to be no less than 75 % of such value).
129 bis MA	Mandatory regime governing early maturity of the loan under the terms of Article 24 of the Act. ·         First ½ of the loan: default at up to 3% of capital granted or 12 unpaid payments. ·         Second ½ of the loan: default at 7% of capital or 15 unpaid payments.
258.2 MA	Include the registrar’s refusal to register clauses that are in breach of mandatory or prohibitive regulations.