New mortgage deferment due to the COVID-19. Does it affect me?

New mortgage deferment due to the COVID-19. Does it affect me?

Among the new economic measures approved by the Spanish government, the recent mortgage deferment stands out. It establishes a period of time during which the payment of mortgage instalments is suspended due to the current health and economic crisis caused by the COVID-19 virus.

As a consequence of the COVID-19 crisis, the Spanish government has approved the Royal Decree-law 8/2020, of 17 March 2020, which establishes a deferment on mortgage debt for the acquisition of main residences.

Below we detail the most relevant aspects of this deferment:

1.- Who can benefit from this deferment?

In the first place, the beneficiaries are the titleholders of mortgage loans in force on the date of entry into force of the Royal Decree-law and who are in a situation of economic vulnerability.

Likewise, the guarantors of the principal debtor can benefit from the deferment with respect to their usual residence and under the same terms and conditions of the titleholder of the mortgage loan.

The guarantors and non-debtor mortgage titleholders who are in a situation of economic vulnerability may require the entity to exhaust the principal debtor’s assets before claiming the guaranteed debt from them, even if they have expressly waived the benefit of exclusion in the contract.

2.- When does it apply?

(i) To become unemployed or, if you are an entrepreneur or professional, to suffer a substantial loss of income or a substantial drop in sales. The substantial drop in sales must be at least 40%.

(ii) That the total income of the members of the family unit does not exceed, in the month prior to the application of the deferment, a certain limit. The limit has been set generally at EUR 1,613.52, but in can be increased under certain circumstances (children or dependent persons over 65 years of age, with disabilities, etc.).

(iii) That the mortgage payment (plus basic expenses and supplies) is greater or equal to 35% of the net income of all members of the family unit.

(iv) That, as a result of the health emergency, the family unit has suffered a significant alteration in its economic circumstances in terms of the effort required to access housing. According to the Royal Decree-law, a significant alteration in economic circumstances is understood to have occurred when the effort represented by the mortgage burden on the family income has been multiplied by at least 1.3.

As an example, if my monthly income is EUR 2,000 and my mortgage loan payment is EUR 650/month, my effort would be 0.325 (650/2,000). Therefore, to be under this circumstance, my effort would have to go up to 0.422 (0.325*1.3). This requirement would be met if my income went down to EUR 1,400 per month but the mortgage payment remained the same (650/1,400 = 0.464).

There is still discussion about whether the circumstances mentioned are cumulative or alternative. From our point of view, we have to understand the rule in the sense that it is enough to comply with one of the circumstances stated to be able to apply for the deferment. This is so because (i) some circumstances are difficult to combine; (ii) requiring each and every one of the circumstances would limit access to the deferment, which is not the purpose of the norm and (iii) because the Royal Decree-law uses the term “circumstances” and not criteria, requirements or conditions to be met.

3.- What is the effect of the deferment?

The deferment leads to the suspension of the mortgage debt during the term of the deferment and the consequent non-application of the early maturity clause in the mortgage loan contract.

That is, the bank will not be able to demand the payment of the mortgage quota, nor of any of the concepts that integrate it (amortization of the capital or payment of interests). During the deferment, no interest on arrears will be accrued either.

4.- How long will the deferment last?

The Royal Decree-law has established its validity until 18 April 2020, when the deferment will cease. However, the norm provides for the possibility that debtors may request the creditor to apply for the deferment up to 15 days after the end of the Royal Decree-law’s validity, with maximum date of the deferment being 3 May 2020.

Updated with the Royal Decree-law 11/2020, of 31 March:

The Royal Decree-law 11/2020 has extended the above-mentioned deferment beyond mortgages for the acquisition of the habitual residence, also incorporating into the mortgage debt for commercial properties leased by entrepreneurs and professionals and for residences other than the usual one in a rental situation.

On the other hand, the period of application of the deferment has also been extended to three months, compared to the previous month. The maximum date of application of the deferment was previously 3 May 2020, and with the extension of the deferment to 3 months, the new maximum date of application of the deferment is 3 July 2020.

If you have any doubts or queries about the deferment adopted by the Spanish government, you can contact us at info@matp.es

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