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CURB ON “FLOOR CLAUSES” IN MORTGAGE LOANS

Written by Francisco Delgado Montilla on 1 June, 2011. Posted in derecho hipotecario, euribor, Headline, hipoteca, Inmobiliario, intereses, mortgages, Property law, property law. No Comments on CURB ON “FLOOR CLAUSES” IN MORTGAGE LOANS

More lifetime mortgages (reverse mortgage) Spain

Lifetime Mortgage (reverse mortgage)

According to the report published by “Optima Mayores” Advisers, the demand of lifetime mortgages has increased to 17% (19,900 applications) until April in comparison to last year same four-month period.

This increase in the lifetime mortgage demand matches the senior citizens’ growing needs to obtain an income and the better knowledge of this product in Spain, where it was first launched in 2004. Spanish Senior citizens’ pensions are at 40% below the European average, what indicates their necessity to face their retirement financing with a peace of mind. Regarding British senior citizens, the Euro and Pound Sterling exchange rate fluctuation has also reduce their earnings.

What is a lifetime mortgage?

A lifetime mortgage is a financial product that consists of a loan for seniors aged 65 or older or dependents, secured against the home where they live. They retain ownership of their home until they die, when their inheritors shall repay the loan or sale the property.

The maximum loan to be granted is based on a percentage of the property appraisal value. Then, the homeowner may receive a regular fixed amount or a lump sum payment.

Who qualifies for a lifetime mortgage?

The following requirements shall be fulfilled to qualify for a lifetime mortgage:

– The applicant or the selected beneficiaries shall be aged 65 or older; or otherwise, they shall be individuals with high to severe dependency levels.

– The borrower shall receive the money from the loan in regular fixed amounts or a lump sum payment (incomes).

– Only the creditor (banks or savings banks) is entitled to demand the repayment of the debt and the mortgage foreclosure when the borrower dies, or if provided in the agreement conditions—when the last of the borrower’s beneficiaries die. The mortgaged property shall be valued and insured according to the Spanish legislation in force.

These are the official requirements to be protected by the Spanish legislation regulating this type of loans and to be entitled to the tax advantages established by this legislation.

Clients and banks may freely agree about lifetime mortgage transactions which include a varied set of terms and conditions; consequently, a professional advisor’s counselling in this proceeding is a determining factor for the good end of the agreement to enjoy the best advantages and conditions available.

Spanish legislation regulating lifetime mortgages

In Spain, this type of mortgages are regulated by Law 41 of 7^th of December 2007—Mortgage Market Reform legislation. This Law provides that the lending institution is obliged to offer an independent advice to individuals, so that the consumers’ rights are preserved and the economic and financial conditions suit their needs. This counselling and negotiation tasks are normally provided by specialised lawyers and companies offering this service to private customers.

If you are thinking about a mortgage which best suits your economic needs, take your time and ask for advice to specialised lawyers. They will ensure the best deal for you.

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)

CURB ON “FLOOR CLAUSES” IN MORTGAGE LOANS

Written by Gustavo Calero Monereo on 10 May, 2011. Posted in conveyancing, euribor, Headline, interest, judgment, mortgages, Property law. No Comments on CURB ON “FLOOR CLAUSES” IN MORTGAGE LOANS

On the 30 September 2010, Court no. 2 of Seville gave judgment declaring the “floor clause” introduced by the respondent entities Spanish bank BBVA, Saving Banks Cajamar and Caja de Ahorros de Galicia in the mortgage loan deeds formalised with them abusive and therefore null and void, for considering that the minimum threshold interest rates set by them are abusive and detrimental for the consumer.

Although the judgment has been appealed by the three financial entities mentioned, the Court has ordered the provisional application of the resolution. Therefore, as from 27 January 2011, they will not be able to include the said clause in their mortgage loans, and from 11 April, they will not be allowed to charge the clients with the difference between the minimum interest rate as per Euribor plus the interest rate agreed with the client, and the minimum threshold interest rate or “floor rate” set by the said bank entities in their mortgage loans.

The so called “floor clause” means that in times of low mortgage interest rates, such as the ones we have lived through and are living through at present, the client is committed to pay a set minimum interest rate, which means that even if interests go down, their mortgages cannot benefit from lower interest rates

According to ADICAE (Association of Banks, Saving Banks and Insurance Companies of Spain), in Spain, there are currently 3.8 million clients who have this “floor clause” included in their mortgage loans and have not been able to take advantage of lower mortgage interest rates over the last years. The said association considers that in 2010, Banks and Saving Banks obtained a revenue of 7,000 million euros thanks to these clauses. These results show the importance and relevance of this judgment.

Therefore, as from 11 April, the entities BBVA, Saving Banks Cajamar and Caja de Ahorros de Galicia are obliged to recalculate repayments in all loan agreements taking into account a variable interest rate according to the Euribor benchmark rate, plus the interest rate negotiated with the client, and not according to the minimum threshold interest rate or “floor rate” established in their mortgage loans. This means that, since the interest rates applicable will be lower, the monthly repayments of those clients who have a mortgage loan with any of these entities will decrease.

Commercial Court no. 11 of Madrid has currently admitted the biggest joint action filed in Spain against 45 bank entities for the application of these “floor clauses”. It is likely, that before the end of the year, we know if such a number of saving banks and banks have to follow the path of the other three mentioned, which will be the most logical and coherent outcome.

However, whichever the result, it is likely that this issue of “floor clauses” reaches the High Court, who will then be in charge of taking the definitive decision about these provisions being abusive or not.

In the meanwhile, I would advise you to check your mortgage loan deeds , so that you may see if you have benefited from this judgement and if from 11 March, your bank is applying the resolution.

We will keep you informed on new updates.

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)