New mortgage law from June 2019 now in full use
07.09.2022A relatively new mortgage law from June 2019 has brought about a series of important changes. These aim to better protect customers according to EU standards and to be more transparent towards mortgage applicants. MedVilla lists the changes for you.
Register a mortgage with a notary
Since the new law, banks are obliged to present the complete mortgage file to the notary 10 days before the passing date. (previously this was only 1 day). This change is intended to better inform customers about the terms and conditions. It also means that you have to go to the notary twice in those 10 days.
During the first visit, the notary goes through all the conditions, including the costs, with the customer. If all parties agree, the second visit will be scheduled. That is at least 10 days so that you as a customer have plenty of time to think about the conditions.
In practice, this means that the mortgage process in Spain will take a little longer. The duration before the change was on average between 6 to 8 weeks, now this is increasing to 8 to 10 weeks. In some cases, faster processing is possible.
Those who cannot or do not want to be present in Spain can give their lawyer/gestor a power of attorney. A power of attorney can be made in Spain (+-75€ for 2 persons), or in UK (+-400€ pp). In the UK this is also a much more complicated process.
We can of course also assist you in this, ask for the options.
Early repayment of the mortgage since the new law.
This has also been made much more attractive in the law with the reduction of fines. The general rules now are that with an early repayment of the mortgage in Spain at a variable interest rate in the first 5 years 0.5% of the amount to be repaid. Then it is reduced to 0.25%.
With a fixed-rate mortgage, the maximum penalty during the first 5 years will be 2%, then a maximum of 1.5%.
Mortgage costs
Mortgage costs have also been reduced since the new law in Spain. The bank is now responsible for the first one-off costs associated with taking out a mortgage. Think of the notary fees for mortgage registration, registration of the mortgage in the land registry and mortgage tax.
The only one-off costs for the customer are now the valuation and administration costs at the bank.
How much can you borrow with a maximum?
Spain does not have 100% mortgages. A ceiling of 80% applies to residents, while a non-resident (UK) can get a mortgage of up to 70%. This top financing is always calculated on the lowest value of the home. This is either the purchase price or the appraisal value. If the latter is lower than the purchase price, this may adversely affect a previously calculated financing.
Spanish banks require proof that the buyer has the financial means to finance at least 30% from equity plus the purchase cost of approximately 13-14%. This amount must be demonstrable on a statement of a savings account. An exception to this is equity in a holding company. Any surplus value of the UK home is not included in equity. Future equity is also not considered for assessing a mortgage application.
Conditions and maximum term of the mortgage
Spanish banks require a demonstrable fixed monthly income from work. They want certainty that the applicant will receive a fixed salary for a longer period of time. The banks look at the current situation and the average of the past two years. Future income will not be included.
A Spanish mortgage has a maximum term of 25 years for non-residents and must be repaid in full on an annuity basis before reaching the age of 75. This means that, for example, a customer who is 55 years old has a maximum term of 20 years on a mortgage. If the mortgage will be in the name of a couple, banks will regularly base the term on the oldest person.
Granting and accepting the mortgage
For acceptance of a mortgage, the applicant may not spend more than 35% of the joint net income on gross housing costs. The housing costs in UK and any financing in Spain are added together. Monthly other credits and/or alimony obligations are also taken into account. Together, this amount may not exceed 35%, otherwise the application will be rejected.
Income from renting out second homes is assessed as secondary income. This looks at rental income, as well as mortgage payments on those homes and the debt-to-value ratio of the homes.