The New Mortgage Credit Law

The number 1 objective pursued by the New Mortgage Law is to establish measures for the protection of consumers who are natural persons who are debtors, guarantors or guarantors of loans secured by mortgage or other real right of guarantee on real estate. To this end, the New Mortgage Law establishes the following objectives:

• To enhance legal certainty and transparency
• To facilitate and guarantee the understanding of the contracts and the clauses that compose them
• To regulate and establish a fair balance between the parties

In addition, it is relevant to take into account that the New Mortgage Law aims to transpose into national law the European Union regulations on this matter, reflected in Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014.

The New Mortgage Law refers to the following main issues:

• Rules and measures for the protection of the borrower
• Rules applicable to credit intermediaries and real estate lenders
• Penalty measures applicable to credit intermediaries and real estate lenders

Main novelties of the Mortgage Credit Law

• Pre-contractual phase: one of the main new features introduced by the New Mortgage Law is the regulation of the phase prior to the formalization of the mortgage loan contract, which aims to ensure that the borrower has at his disposal the necessary information to understand the contract, as well as the legal and economic consequences of the operation to be carried out.
• The new function of the notary: precisely in order to help the process of transparency and understanding of the consumer, the New Mortgage Law attributes to the notary the function of advising the borrower, and clarify all the doubts that may arise in relation to the contract. This new function takes the form of a series of specific measures:

1. The notary must check that the deadlines and other requirements necessary to comply with the principle of transparency (especially those related to the understanding of the most complex contractual clauses) have been adequately met. For this purpose, the client must fill in a questionnaire so that the notary can ensure that he/she knows in detail the contract that he/she will sign later on.
2. The financial entity must make the contract available to the consumer at the selected notary’s office at least 10 days prior to the date of signing the transaction, so that the consumer can review its clauses in detail.
3. The client will have to go to the notary’s office at least twice, the first time will be without the financial entity being present, so that the consumer can ask any questions that arise without the presence of the banking entity. The second visit will be for the signing of the mortgage contract.

• Knowledge of the personnel of financial institutions: within the section relating to the rules applicable to financial institutions, a series of new features are introduced, among which the requirement that the personnel hired by financial institutions have the appropriate technical knowledge to advise on the contracting of mortgage loans stands out. In order to comply with this objective, the New Mortgage Law establishes a series of requirements, among which the obligation of bank personnel to take continuous training courses on mortgage loans, under the supervision of the Bank of Spain, stands out.
• Protection measures for borrowers: the New Mortgage Law also establishes a series of new features in favor of borrowers that can be summarized as follows:

1. Cancellation: total or partial cancellation of the mortgage loan is permitted without the consumer having to pay commissions, unless the cancellation is made in the first years of the contract and only in certain cases.
2. Early maturity: the early maturity of the mortgage loan by the financial entity may only occur in certain very specific cases regulated in the New Mortgage Law, and when the non-payment is «sufficiently significant», and not according to the rules agreed by both parties, as was the case until now (note: usually, banking practice considered the maturity of a mortgage loan upon the non-payment of 3 installments). In particular, this translates as follows: in the first half of the loan term, the delay may not exceed 3% of the granted capital or that 12 unpaid installments are accumulated for the process to be executed. In the second half of the loan term, the aforementioned percentage rises to 7% and the unpaid monthly installments are 15.
3. Dation in payment: although it did appear in the previous drafts of this regulation, the text of the New Mortgage Law finally approved does not incorporate the possibility of dation in payment. However, the eleventh additional provision amends Royal Decree-Law 6/2012, of March 9, on urgent measures for the protection of mortgage debtors without resources. This implies: converting the code of good practices (available in the Annex of said regulation) into a permanent and mandatory mechanism for all adhering entities. The code of good practices allows the most vulnerable debtors in default to access the debt relief options contained therein (among which is dation in payment, provided that a series of mandatory requirements are met). In addition, by modifying the scope of application of the regulation, the possibility of benefiting from these measures is added to all loan or credit agreements secured by real estate mortgages entered into from now and not only, as was the case until now, to those that were already in force at the date of entry into force of the regulation.

• Expenses to be assumed by the consumer when contracting a mortgage loan: with the entry into force of the New Mortgage Law, the customer must only assume the cost of the appraisal and the first deed onwards (second and subsequent). The rest of the expenses will be assumed by the financial entity, and specifically, the following: Gestoría, Impuesto de Actos Jurídicos Documentados, Notaría, Gastos de registro.