29 Apr New protection regulations in the field of Spanish real estate credit agreements
A new law aiming to establish new standards of protection in the sector of Spanish real estate credit agreements has recently been passed. It will enter into force by mid-June of this year.
Purpose
The law 5/2019 from 15th March, regulating real estate credit agreements, seeks to establish imperative rules of protection for natural persons, regardless of whether or not they are consumers, who hold the position of borrowers, guarantors or holders of guarantees in loans or credits granted by means of a mortgage or another security right on real estate for residential use, or whose intention is the acquisition or conservation of property rights over land or real estate built or to be built.
The law is imperative and is not available to the contracting parties unless the rule expressly states otherwise.
The requirements for the implementation of this rule are as follows:
1.- It applies to loan and credit agreements granted by natural or legal persons acting in a professional context;
2.- The borrower must be a natural person (consumer or not);
3.- The loan is secured by a mortgage or another security right on residential property, which does not necessarily have to be housing (e.g. storage rooms or garages). But it also applies in case of acquisition or preservation of property rights over land or real estate built or to be built, if the consumer occupies the position of the borrower, guarantor or trustee.
Examples of protection regulations
1.- Requirements regarding real estate credit agreements:
- It must be printed in hard copy or another lasting medium. In case of a guarantee with a mortgage on a property, a public deed is required.
- The Act establishing the law must be granted. This act is issued by the Notary at least one day before the authorization of the deed, in which it is stated that the creditor has supplied the borrower, at least 10 days before the drafting of the agreement, with the law listing a series of required documentation (e.g. a copy of the draft agreement, expenses, terms of insurance relating to property damage, etc.).
2.- Early termination
The requirements regarding early termination established by this law are as follows:
- For the total sum of unpaid and overdue instalments to be at least equal to:
a) 3% of the amount of granted capital (it’s understood that this happens when the unpaid instalments equate the lack of payment of 12 monthly rates) if the delay occurs within the first half of the loan.
b) 7% of the amount of granted capital (in this case, when the unpaid instalment equates the lack of payment of 15 monthly rates), if the delay occurs within the second half of the loan.
- For the creditor to have requested payment from the borrower, granting a period of at least one month in which to comply and to have warned the borrower that if this is not met, full repayment of the loan will be claimed.
Field of implementation
This law is only applicable to agreements signed after its entry into force, to renewals or subrogations of pre-existing agreements also signed subsequently, and to early termination clauses of previous agreements whose expiry has not taken place prior to entry into force of the law.
Entry into force
It was published in the Official State Bulletin of Spain on March 16th, 2019, establishing its entry into force three months on, from June 16th, 2019.
Conclusion
This law establishes measures that, on the one hand, protect the borrower but, on the other hand, place greater restrictions on creditors. These measures, added to the recent legal reforms related to the protection of the borrower, undoubtedly increase the risk for the creditor. The logical consequence is that mortgage loans will become more expensive, making it more difficult for individuals with low incomes and unstable jobs to access financing for housing.
