New Mortgage Guidelines Agreed by Banks
March 20th, 2012
The government’s new ‘Code of Good Practice’ for mortgages has now been agreed by most Spanish high street and savings banks. It offers unemployed home owners, whose circumstances qualify, the option to restructure their debt, reduce it, or even hand over the house to pay off the mortgage in full.
Debt restructuring can include the possibility to make interest only payments for up to four years, extending the term of the loan to 40 years and rearranging payments for one year at an interest rate of 0.25% above the Euribor rate.
If despite this restructuring, the home owner is still unable cope with the debt, the bank must offer a rebate of part of the mortgage. The amount of this reduction is dependant on each particular case, but experts believe they could adjust the mortgage to the current value of the home.
After one year of restructuring, the owner will be able to hand over the property to pay off the debt in full – commonly a bank would take the property at 60% of its value and pursue the owner for the remaining debt. If this happens, the owner may also remain in the property paying a monthly rent of 3% of the outstanding debt that was outstanding – so if the debt was 100,000 euros, they would pay only 300 euros per month.
Qualifying circumstances are firstly those families facing foreclosure with all household members unemployed and their mortgage payments exceed 60% of all income. Secondly, the property must not be valued at over €200,000 in cities of over one million (Barcelona and Madrid), going down to €180,000 in cities of more than half a million people, €150,000 in towns of between 100,000 and 500,000 population, and €120,000 in towns with populations of under 100,000.
- Change to Mortgage Foreclosure Law Rebutted
- Spanish Mortgage Update
- Handing Over the Keys Will not Cancel a Mortgage