This Sunday, Law 5/2019 of 15 March, which regulates real estate credit contracts, came into force. This entry into force means that this law will apply to mortgage-backed loan agreements signed as of yesterday.
One of the main changes was the introduction of a new element of transparency, which involves a prior visit to the notary by the person who is going to sign the loan as the borrower in order to obtain the material advice described in the law.
In this regard, the DGRN published on Friday 14 and Saturday 15 June 2019 various instructions in order to resolve certain doubts of material application:
- Instruction on the deposit of general conditions of the contract, and the reflection of the same in the loan deeds and in the Property Registry, since the entry into force of Law 5/2019 of 15 March, regulating real estate credit contracts.
- Sobre el uso de las plataformas informáticas de las entidades financieras para tramitar la información previa:
It is worth remembering that on April 29 the legislative developments of Law 5/2019 (LCI) were already published, by means of:
- Royal Decree 309/2019, of 26 April, which partially develops Law 5/2019, of 15 March, regulating real estate credit contracts and adopts other measures in financial matters.
- Order ECE/482/2019 of 26 April amending Order EHA/1718/2010 of 11 June on the regulation and control of advertising of banking services and products and Order EHA/2899/2011 of 28 October on transparency and protection of customers of banking services.
Finally, it should be stressed that, although the new Law 5/2019 (LCI) is commonly known as the “new mortgage law”, it will continue to coexist with the current Mortgage Law, since the latter is merely a complement to the current mortgage law “Decree of 8 February 1946 approving the new official wording of the Mortgage Law” since the classic law regulates the right in rem as such and Law 5/2019 (LCI) regulates aspects more related to contracting and transparency.
Once the legal regulatory framework has been established, we reiterate the most important innovations offered by the new regulations:
- Mortgage expenses: these will be paid by the bank, except for the appraisal, which must be paid by the borrower and can also be used to grant the loan at another entity.
- Commissions for early repayment: these are limited to 0.25% in variable interest loans during the first three years and 0.15% during the first five years, after which time no commissions will be charged. In fixed interest, the commission will be up to 2% for the first 10 years and then 1.5%.
- Regulation of early maturity: 3% of the principal loaned or the equivalent of 12 instalments during the first half of the total agreed term may be declared due, and 7% or 15 instalments if the defaults occur in the second half
- It favours the change from variable mortgage to fixed mortgage.
- Prohibition of using a floor clause.
- More pre-contractual information: there will be a visit to the notary in the 10 days prior to the formalisation of the loan so that he/she can advise you on the content and consequences.
- Fixing of the moratorium interest: it will be limited to the remunerative rate + 3 points.
This new regulation, which has had a 3-month gap for the sector to adapt to it, represents a new model of banking contracts focused on transparency as proclaimed by Directive 2014/17/EU, which is transposed into this law. Therefore, its application represents a new step in the consolidation of consumer rights.
But it is also beneficial for the financial institutions themselves to whom this law offers a framework of stability and legal certainty with which it is hoped that the disputes generated recently will be settled.