Good Mortgage News For Expat Property Buyers In Spain

Spain’s new laws on mortgages are great news for those wishing to purchase property and those who’re already homeowners.

Up until now, the popular expat destination’s mortgage laws favoured the banks in a manner which penalised borrowers, but new EU rules intended to align member states’ laws have forced the Spanish government to adjust its position in favour of buyers.

One rule in particular is long overdue, as it protects homeowners in temporary financial difficulties from having their homes repossessed as a result of late payments.

For a few years post-2008, only one payment needed to be missed in order for repossession to take place, with a recent rule change allowing three missed payments. The EU directive allows a 12-month delay or arrears totalling 3 per cent of the capital amount loaned during the first half of the term and the second half-term allows 15 missed payments and a 7 per cent capital amount owed before repossession is legal. In addition, late payment fees, at present set at 12 per cent, have been lowered to 3 per cent.

Spain is infamous for its high conveyancing fees, with the EU directive a game-changer for expat home buyers with limited funds. Basically, under the old system, borrowers paid all of the associated costs, often amounting to as much as over 4 per cent of the property’s valuation. Under the new system, lenders are liable for all the fees, with the exception of the property valuation cost itself and the mortgage origination fee, a total of 1.6 per cent. Another benefit for expat home owners is that Spanish banks will no longer be permitted to force mortgagees to purchase home insurance and life insurance as part of the mortgage package.

Borrowers can now purchase insurance from external sources, with banks also forbidden from raising the interest rate in this case. Other advantages given to house purchasers via the EU directive are a zero floor rate on mortgages with variable rates, and expat borrowers whose mortgages are in non-euro currencies are now able to convert to euros should they so wish. Banks are also obliged to inform borrowers should their debt increase as a result of currency fluctuation, with early repayments, conversion to a fixed rate loan, changes to documentation, a ten-day cooling off period and total transparency all set out in favour of buyers.