Spanish Mortgage Credit Directive

By Marc Elliott De Lama · 26 August 2019

New Spanish mortgage law or Mortgage Credit Directive

There has been a lot of talk regarding the new Spanish mortgage laws that came into force on the 16th June 2019 so we thought it was about time we addressed some of the major changes that potential or existing borrowers should be aware of…

The changes to the rules and regulations are not a directive from the Spanish government but a directive brought in by the EU, the Mortgage Credit Directive 2014/17/EU which should have been implemented since 21st March 2016. Countries like the UK implemented these new rules on the due date, mainly because the UK mortgage market is already highly regulated and the new changes had little impact. The Spanish mortgage market and people operating within it, have not been regulated to such an extent hence why it has taken 5 years for the Spanish authorities to finally get around to enforcing these new rule changes.

Unfortunately, now these new regulations are in place, we are seeing that there is an element of chaos and last minute panic with the lenders, others connected to property sales and firms linked to the new mortgage rules, which is causing confusion and delays with new mortgage lending. Hopefully, in a few months the market will have become used to these rules and mortgage applications can get back to normal in terms of timescales to completion.

For consumers or Spanish mortgage borrowers, the changes to the rules mean that there has to be greater transparency; which is a great thing for consumers in the Spanish mortgage market, especially given the problems borrowers have had in this country over the last 15 to 20 years with mortgages either being miss-sold by bankers & abusive clauses being inserted into mortgage contracts without being fully disclosed or explained to the consumer.

These bad practices have had a hugely detrimental affect on borrowers, which we can see with the amount of serious claims being brought to the Spanish courts requesting compensation and the large amount of repossessions that are still occurring. So, the greater transparency will try to eradicate some of the abusive practices that lenders have entered into and its goal is to protect the general public and help them understand their lending proposals better.

There will be some negatives regarding these new rules. This new way of doing things will mainly mean that getting a mortgage application to completion may take a while longer than it normally does as the law now states that there has to be a 10 to 15 day cooling off period that the lender has to give the borrower along with the full and complete terms and conditions of the mortgage proposal. This is to ensure the borrower has time to reflect / consult on the deal that is being put forward, so expect completions to take a week or two longer and make sure you make vendors aware that a quick turnaround to completion is unlikely going to be possible.

The best way to avoid delays is to get your Spanish mortgage finance approved before you make an offer on a property. Here at Fluent Finance Abroad (FFA) we have an agreement in principle facility with our lenders which means that the mortgage offer is officially granted subject to survey. Once the perfect property has been sourced, the valuation can be instructed immediately speeding up the sales process no end.

The next part of how the new rules and regulations affect the Spanish mortgage market is how it regulates the people / companies that advise on Spanish mortgages.

This is where the new directive really makes a difference to consumers as anyone who claims to be an EXPERT in Spanish mortgages and their rules and regulations must certify that they are indeed qualified and licenced to give advice on Spanish mortgages.

The types of individuals or companies who have been promoting themselves as being able to advise on mortgages in Spain have been the following:

• Mortgage advisers such as ourselves, Lawyers, Accountants, Real Estate agents and anyone else who wanted to set up and earn commissions for introducing mortgage business to banks as there has been no real regulation on mortgage advice and practice in Spain.

From now on, any person or company who wishes to conduct mortgage business in Spain must comply with the following rules and regulations or risk being fined or worse.

• All Spanish mortgage advisers / experts or anyone who promotes or advertises that they organise mortgage lending for end users, must obtain the necessary licences and certificates from the required authority. FFA are applying for the national license from the Bank of Spain (Banco España) so we cover the whole of the country and its islands
• The Spanish mortgage adviser must pass a formal and official exam which is specific to the Spanish mortgage market and its laws. The exam will be in Spanish therefore your mortgage adviser must have a good knowledge of the language in order to sit the exam. There are a lot of foreign owned mortgage firms/sole traders who may struggle with this basic requirement.
• Company directors of firms promoting that they offer expert Spanish mortgage advice must also demonstrate that they have the required knowledge and therefore must sit the required examinations if they are to be involved with giving mortgage advice: Directors of mortgage companies cannot just employ qualified advisers to bypass the regulation.
• The mortgage broker must have adequate professional liability insurance (PLI) to cover any bad advice they give to consumers.
• Companies and individuals must have clear complaints systems and procedures easily available to potential or existing clients if there is a requirement for a complaint to be made.
• All mortgage advisers and mortgage company directors must register with the anti-money laundering and anti-fraud register SEPBLAC which is linked to the European Central Bank (ECB). You can follow the link for more information https://www.sepblac.es/en/
• The mortgage adviser must disclose to the consumer that they receive a commission from a lender or lenders and if this commission is not known at the outset then it must be disclosed at a later date during the application process and before completion.
• The adviser / s must be able to implement and follow specific and compliant sales procedures and be able to document the advice given from the first client contact until the very end of the application process.
• Records of the application process must be kept on secured files for a minimum of 6 years, just in case of a historical complaint or investigation by the regulatory authorities.

These are some of the important changes of the new EU mortgage directive and this is what Fluent Finance Abroad are doing to comply with the above –

• FFA have for the last 3 years had Professional Liability Insurance but we have increased the covers to comply with the new laws – policy available for inspection upon request
• The company director, Marc Elliott has already applied to register with SEPBLAC
• FFA have employed an external compliance and legal entity to advise & supervise the firm to ensure that all new procedures are being or have implemented within the required timescales set down, which is 6 months from the 16th June 2019.
• FFA have always kept secure files recorded on all its business so we already comply with those requirements.
• All the staff at FFA have passed mortgage exams in other jurisdictions E.g. the UK or in other areas of the finance industry such as MIFID 2 and we are putting forward 4 members including the director Marc Elliott for the exam, which we expect to have secured well within the 6 month period.
• FFA do have to issue a new terms of business letter to give to new potential clients, this information will be explicit about who we are, what qualifies us to be in the Spanish mortgage business and how we get remunerated. We are in the process of implementing this with the guidance of the external compliance company.

All in all, FFA have been calling for such regulation for over a decade and therefore we welcome the new mortgage credit directive. If this was in place before the credit crisis, maybe the Spanish property market would not have suffered so badly.

But as the saying goes, it's better late than never.

For further information please contact us at info@fluentfinanceabroad.com or call our office on 0034 952 85 36 47.

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