New Mortgage Law approved by Spanish Cabinet
On 2 March 2007, the Spanish Cabinet approved the new law regulating certain aspects of the mortgage market. The main objectives of the law are to reduce certain fees and costs related to amending, cancelling or transferring a mortgage and to increase the independence and professionalism of valuers.
The main provisions of the new law are:
- Maximum penalty for early redemption or transfer of a variable rate mortgage to a third party reduced from 1% to 0.5%.
- For fixed rate mortgages the lender may only increase this penalty if, as a result of the cancellation or transfer of the mortgage, the lender incurs a loss. If the lender incurs a gain then they will not be able to charge a redemption penalty.
- An increase in the amount of a mortgage may be done by novation. This involves a reduction in Notary and Land registry fees.
- Notary and Land Registry fees will be reduced for cancellations, novations and assignment of mortgages. For example, under the new law the notary fees for cancelling a mortgage of €120,000 will be €42 versus around the €240 currently charged.
- “Inverse” mortgages will only be available to people 65 or over and the lender will not be able to re-possess the property if the loan is fully drawn and the borrower is still alive.
- Valuation firms must establish an internal Code of Contact to avoid being under the influence of their shareholders.
- If the valuation company is owned by a financial entity they must have a technical committee which oversees the implementation and operation of the Code of Conduct.
- There will be shareholding limits placed on valuation companies.
It is important to note that the law still needs to be approved by the Spanish parliament before coming into affect and this could take up to 6 months. At the same time it will not be retroactively applied, i.e. it will only apply to new mortgages which are taken out once it comes into affect.
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