European mortgage standards

Spain receives another cautionary warning from Europe regarding its mortgage law. Brussels is urging the Spanish government to adapt to the European standards. In fact, Spain had the obligation to make effective the new European guidelines in terms of mortgage before the 21st of March 2016.

Spain receives another cautionary warning from Europe regarding its mortgage law. Brussels is urging the Spanish government to adapt to the European standards. In fact, Spain had the obligation to make effective the new European guidelines in terms of mortgage before the 21st of March 2016. Even though it has not been possible to start these changes due to the caretaker nature of the current government, this does not excuse them from not having done anything to this respect during the last stage of their legislation.

The immediate consequence is that the future elected government (after the oncoming elections in June 26th)will have to reform the mortgage law, risking disciplinary action from the European Union if they choose not to.

The European standards in mortgage acquisition will specifically force Spanish banks to implement the following changes in their current policies:

-          Obligation to provide clients with all the existing offers in the market.

-          Obligation to provide the client with a copy of the contract before signing it, thus granting them a seven days reflection period during which the clients have the right to revoke if they want.

  • Suppression of early repayment surcharges.
  • Possibility to articulate a Dación en pago (give the house back to the bank to clear any remaining debt on the mortgage)
  • Giving a “permissive” time limit before eviction.
  • Capping interests on arrears.
  • Limiting cross-selling, not letting the banks to subject the concession of a mortgage to the acquisition of parallel products, such as insurance policies.

These measures will give more protection to clients and will also make the whole mortgage acquisition process much more transparent. In favour of the latter, the bank will also have greater access to an individual's information before conceding a mortgage. This way, irresponsible concessions, such as the ones that preceded the financial recession, will be avoided.

The new Spanish Government will be in charge of enforcing these changes if they do not want to be fined by Brussels.

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