29/08/2014 – El Economista
Complaints about caps in mortgage agreements that prevent the borrowers to benefit from decline in the Euribor reference have massively arrived at the Complaint Department of Spain‘s central bank.
Over the seven past months, the Department received 20.826 letters of complaint, out of which 9.925 referred to abusive clauses in mortgage contracts. The figure is by 144.54 per cent greater than the total of 33.185 complaints sent during the same time period last year with only 17.979 documents regarding loan interest rates.
The data is very alarming as many of the affected customers cannot come to an agreement with their lending entities. It should not be forgotten that last year, the incidence sky-rocketed by 246%.
Received complaints represent such a volume that the Bank of Spain had to call for an auction to outsource their management. Five companies were awarded contracts on the service: Deloitte, Ernst & Young, Indra, KPMG and PricewaterhouseCoopers.
Complaint flooding was triggered by a decision of the Supreme Court which in March last year cancelled the minimum clauses stipulated in certain mortgage agreements of BBVA, Abanca (former Novagalicia) and Cajamar.
Most of the doubtful contracts have been signed during the real estate boom when no one expected Euribor to fall below the current minimum. Usually, the rate was fixed at 3% or 4% cap in order to prevent loss of the bank in case something like this occurs. Now, people realize what they have signed and bring their lenders into trials.
Taking as an example a teorethical mortgage of 140.000 Euros for 20 years with a spread over Euribor of 0.50 and an interest rate fixed at 3.5 per cent, a borrower would have to pay 168 Euros more each month.
Abusive Clauses Disappear. Do They?
Banks reluctantly remove the minimum clauses as this would mean closing a goldmine to them. For instance, BBVA would stop collecting €420 million, whereas Abanca and Cajamar €100 million both. However, the clauses disappeared from the new mortgage advertisements. As a compensation, the sector bases on higher differentials of 1% – 2% rather than 0.5% – 0.6% applied before the recession.
The Government modified the law in a way that each and every customer must now confirm they are aware of existence of such a clause in their mortgage agreement before signing for it.
Original article: El Economista (by E. Contreras)
Translation: AURA REE