The new Real Estate Credit Act: lukewarm protection for borrowers and strong impact on lenders
18 March 2019
On 21 February 2019, the Spanish Congress passed the Act 5/2019, regulating real estate credit (the Act), after a long and "tortuous" legislative process. The final text of the Act has been published in the Spanish Official Gazette (BOE) on 16 March 2019.
The ultimate purpose of the Act is to strengthen the guarantees for borrowers in the contracting process and ultimately avoid the judicial enforcement of such loans with the consequent loss of their homes. The Act not only finally incorporates Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property into our law, it actually goes beyond this. It extends the scope of application in respect of that provided for the Directive, so the Act will apply to any natural person acting as borrower, surety or guarantor, regardless of whether he or she is a consumer or not. The Act also regulates aspects of mortgage subscription not provided for in the Directive, such as the distribution of expenses associated with the contracting of loans or the regulation of lenders’ early termination rights.
1. Early termination of mortgage loan agreements (Art. 24)
- During the first five years of the loan term, with a limit of 0.15% of the early repaid amount;
- During the first three years of the loan term, with the limit of 0.25% of the early repaid amount.
- During the first ten years of the loan term, with the limit of 2% of the early repaid amount;
- Subsequently, up to a limit of 1.5% of the early repaid amount.
- Standardised warning sheets containing particularly sensitive clauses.
- In the case of floating rate loans, the delivery of a separate document specifying the different periodic instalments in different interest rate evolution scenarios.
- A minimum period of 10 days prior to the signing of the agreement is laid down, period in which the borrower must go to the notary to receive free advice.
- Strengthened supervision by notaries who, by means of a notarial act, will certify that all legally required prerequisites have been fulfilled. The contents of this act shall be presumed to be true and complete and shall be evidence of the advice given by the notary and of the statement that the borrower understands and accepts the contents of the documents described in order to comply with the principle of transparency in their material aspect.
- The loan agreement deed cannot be authorised (by the notary) if the timely and formal fulfilment of the lender’s transparency obligations provided for in the Act have not been documented or the borrower has not appeared to receive free advice from the notary by the afternoon of the day before the formalisation of the agreement in front of the notary.
- Property valuation costs: to be paid by the borrower.
- Management paralegal fees: to be paid by the lender.
- Notary fees for the mortgage loan deed: to be paid by the lender.
- Charge for notarial copies: to be paid by the person requesting them.
- Land Registry fee: to be paid by the lender.
- Stamp Duty: in accordance with the applicable tax legislation (where Royal Legislative Decree 1/1993, of 24 September, approving the Stamp Duty (Recast) Act, after the amendment performed by Royal Decree Law 17/2018 of 8 November, generally attributes the status of taxpayer to lenders). However, if during the term of the loan one or more subrogations take place, in accordance with the Act 2/1994 of 30 March on Subrogations and Amendments of Mortgage Loans, the subrogee lender must be reimbursed by the subrogor in the proportional part of the tax and the expenses corresponding to him at the time of the loan is granted.
- The currency in which the borrower earns most of the income or in which the borrower has most of the assets, as indicated at the time of the most recent credit worthiness assessment for the loan agreement; or
- The currency of the Member State in which the borrower was resident on the date the loan agreement is granted or is resident at the time the borrower requests the conversion.