The Council of Ministers recently approved the Real Estate Credit Bill which aims to reduce the costs associated with changes in mortgage contracts and strengthen transparency in property purchase processes.
The proposed regulation lowers the commissions for early cancellation of variable rate loans until they are eliminated after five years of the contract’s validity. The variable to fixed rate conversion will not pay commission from the third year and the fees and notary fees will be reduced.
The reduction of the commissions contemplated by the norm approved by the Council of Ministers focuses on the early cancellation operations and the conversion of fixed-rate contracts. In the case of the cancellation fee, the new percentages apply to mortgages signed after the new Law came into effect, while those relating to the conversion of variables to fixed mortgages affect the mortgage contracts that are currently active.
The cancellation fee for variable-rate loans will be zero as of the fifth or third year of the contract’s validity, depending on what was agreed: in the first case (five years), the limit will be 0.25 per 100 of the capital paid in advance; in the second (three years) it will be 0.50 percent. In the case of variable rates, the maximum percentages that the Bill establishes will be 4% of the anticipated amount if this is done in the first ten years and of 3% if it is later. At present, there is no legal limit for fixed rate loans.
In general, the so-called linked sales are prohibited, that is, those that oblige the consumer to accept a series of financial products as a condition for obtaining the mortgage. In addition, in order to start the execution of a mortgage loan, there must have been nine monthly defaults or 2% of the capital granted during the first half of the life of the loan.
The improvement of transparency is one of the pillars of the new Real Estate Credit Law. In the pre-contractual phase, the bank must deliver to the client, at least seven days before signing the contract, detailed documentation on:
- Binding offer for the entity
- Existence of potentially sensitive clauses
- Centers of evolution of quotas based on forecasts on interest rates
- Associated insurance
During those seven days prior to the signing of the contract, the notary will advise free of charge and verify through the minutes that the consumer has received and understands the legal and economic consequences of the contract he is going to sign. This is a necessary condition for the notary to authorize the deed.
The norm is in the hands of the Congress to initiate the parliamentary procedure and counts on a wide political consensus.