Friday, 22 November 2013

Minimum floor rates on mortgages in Spain

Over the past few weeks there has been a number of news articles about abusive clauses in Spanish Mortgage deeds.

What types of clauses are being considered abusive 

One of the most publicised clauses is minimum floor rates which is where a Spanish Bank incoperates into the mortgage deed a specified rate below which the variable rate can never fall. As mortgagees started to find payments diffcult to meet many started to look at why in an environmnet of such low overall rates in Europe this was not being reflected in their mortgage payments.

Slowly this practice of ensuring that the bank in Spain earned minimum income from interest payments immaterial of what the level of variable rate was in the current market, came to light.

Why is this abusive

On a case by case basis the Spanish courts are ruling in favor of the mortgagee on the basis that whilst the practice itself is not illegal the failure to ensure the client understood what they were signing was.

Other areas of abusive clauses can the adding compulsory products like life cover where it is not a need whilst again not making this specification clear to the client before signing.  

What are the Banks in Spain doing to respond to the courts findings

Little by little Banks are starting to remove the clause of minimum rates from new deeds of those buying property in Spain and some are actually removing them from existing deeds. There is however no national directive as to what banks should or should not be doing so all cases are looked at on an individual basis.

The loss of the minimum rates will have an impact on the earnings of the banks who extensivley used them for some the removel could see next years profits wiped out completley. 

Veiw full article Spanish mortgage minimum floor rates 


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