The Government will close in the next few days a fundamental reform on the mortgage market, in order to protect borrowers from the spate of evictions which has taken place in the last few years. The intention is to “improve the position of the debtor”, decreasing the default interest rates dramatically in all mortgages on principal residences, so that they cannot be over the legal interest of money (now at 4%) plus a surcharge of two percentage points. That means, a maximum of 6%, opposite to the average 20% which is being charged right now, according to the mortgage experts. The default interest rates range between 18% and 29%, according to the sample of Adicae, who has analyzed 18000 deeds. “The average is near 24%”, sources close to this association are revealing.
(…) The reinforcement of the protection of debtors had been agreed by the Government and the socialists at the end of 2012, but had not been made public, according to sources within the commission created in order to solve the problem of the evictions. The PSOE will include this proposal of default interest rates in the amendment prepared for the project, which will be debated in Parliament on Wednesday, according to socialist sources.
(…) The agreement between PSOE and the Ministry of Economy could not be formalized in November and was postponed for the processing in Parliament. Now, as the decree has been “converted” into a Draft Law, positions have neared much more, thanks to the amendments. Now, the intention of the Government is that “under no circumstances will it be agreed that the mortgage assures interests (to the bank) for a period longer than three years”, instead of the five years established by the Mortgage Law. This means that debtors will pay interest rates of 6% during a maximum of three years, instead of 20% during five years. A great difference.
(…)The proposal prepared by the Ministry of Economy also stipulates the suppression of the article 115 of the Mortgage Law. The mortgage creditor will not have the legal ability to impose the debtor the extension of the mortgage in order to ensure due interests which have not been paid. This agreement will be allowed, but it will no longer be a “privilege” of the financial institution.
Another novelty is the proposal made by the Government of an extrajudicial procedure for the sale of the property when the debtor fails to pay the mortgage.
How will this be done? “At any moment prior to the bid, the debtor will be able to present a buyer to the court who offers an amount of at least 70% of the assessed price”. One the bank has been notified, it will have “20 days to present a buyer for a higher price or to take over the property for that amount, ending the procedure”. The assessment presented by the debtor will prevail over the one presented by the bank. (…)