ECJ Puts An End To The Eviction Of Family Guarantors

21 October 2016 – Cinco Días

The European Court of Justice (ECJ) has ruled that mortgage guarantees from individuals to companies are protected by the European directive on unfair terms. In this way, the EU judges have opened the way for the cancelation of this kind of guarantee and its most draconian conditions, when the contracts favour financial institutions in an unfair way. The ruling also jeopardises the execution of guarantees between individuals, which are very common in the case of house purchases.

In less than a year, and thanks to one case in Italy and another in Romania, the European Court of Justice has revolutionised the treatment of mortgage guarantees, many of which will be protected by the European directive on unfair terms from now on. Until now, it was assumed that the guarantors of a company were responding to a professional relationship and therefore, they were not covered by the rules governing consumer protection.

However, that interpretation did not consider numerous guarantors whose relationship with the company was of a family or friendly nature, without any commercial interest whatsoever. And so, the European Court of Justice has put an end to the gap by classifying these types of guarantors as consumers.

In November 2015, the EU judges indicated and they have just reiterated (14 September 2016) that the European Directive 93/13 governing unfair terms should protect people who guarantee the credit of a company that they do not manage or hold majority shares in.

In such cases, the new European legislation considers that the guarantor is acting as a consumer and therefore, the national courts may cancel the guarantee if they consider that the contract did not inform them properly about the risks or if the contract grants an unfair advantage to the financial institution.

The lawyer Juan Ignacio Navas, Partner-Director of the law firm Navas & Cusí, classifies these types of guarantees, which do not generate any economic benefits for the guarantor, as “altruistic”. And he says that they are granted regularly, particularly in the case of small and medium-sized companies. (…).

Navas believes that the new legislation will not only affect guarantees for loans to companies but will also be extended to all types of individual guarantors. (…).

The lawyer said that many mortgage loans are signed with these altruistic guarantees: “Cousin, brothers, daughters, parents and friends, in other words, people linked by family or friendship ties, without any economic interest”.

Legal sources stress that in these types of contracts “the guarantor is risking something as important as his/her home without gaining anything in return and he/she does so because of the pressure exerted by financial institutions”. (…).

Nevertheless, other lawyers, such as the Partner of the law firm Jausas, Jordi Ruiz de Villa, warn that the rulings from the European Court only ensure that the conditions of these guarantees will be reviewed from the perspective of consumer protection and that even if a contract includes an unfair term, a judge may decide to just cancel that term or amend the commission charged without the need, for example, to cancel the entire guarantee.

As a result, some Spanish judges have already declared some mortgage guarantees to be null and void as they considers that they include unfair terms, which means that the rulings from the European Court may help halt the evictions of these kinds of family or friend guarantor.

Original story: Cinco Días (by Bernardo De Miguel and Juande Portillo)

Translation: Carmel Drake

Bankinter & Popular Grant More High LTV Mortgages In 2015

19 October 2015 – Expansión

Over the last year, most of the listed banks have continued to reduce the volume of mortgages for which they finance more than 80% of the value of the property – the percentage that is regarded as the normal maximum for a primary residence -. During the six months to June, Spain’s eight listed banks granted mortgages of this kind amounting to €52,814 million, which represented a decrease of 3.7% with respect to the previous year. This type of product, which by its nature involves higher risk, is penalised by banking regulations, since the capital required to support it is greater than the amount needed for mortgages with lower loan to value ratios.

Only three banks increased the volume of these loans in the last year: Bankinter, Popular, and to a lesser extent, BBVA.

Bankinter recorded the highest increase, up by 32.7%, to €930 million. The entity says that the increase is due to an accounting change and that, without that effect, the increase would be around half (of that figure). It insists that it does not finance 100% of homes, except in very exceptional cases. Moreover, Bankinter stresses that these (high LTV) loans represent a small percentage of its total mortgage portfolio, just over 5%, which is well below the average for the sector.

In the case of Popular, the YoY increase of 23%, resulted in a total of €2,598 million. Sources at the bank attribute this increase to the initiative by the bank to sell its own homes. “These loans are granted to finance (the purchase of) homes from Aliseda (Popular’s real estate arm); otherwise, we only finance LTVs of up to 80%”. During the first half of this year, Popular sold own properties worth €1,172 million. Loans with a loan to value of more than 80% represent 15% of the bank’s mortgage portfolio. However, its default rate is almost half the sector average, at around 8%.


The other bank that recorded an increase in this kind of loan is BBVA, although the rise there was much more measured. The increase amounted to 3%, taking the loan balance to €13,903 million, i.e. 15% of its total stock. The entity explains that the increase was due solely to the incorporation of balances from the CatalunyaBanc group, which were included at the end of the second quarter. The former savings bank was acquired by BBVA free of all non-performing mortgages, as the doubtful loans had been sold to Blackstone. Nevertheless, the healthy mortgage portfolio contained lots of loans with high loan to value ratios.

All of the other listed entities reduced their stocks of this kind of loan during the last year. The most marked decreases were recorded by CaixaBank and Bankia, with -13.8% and -12.8% reductions, respectively. Sabadell’s stock decreased by more than 5%; Santander by 3%; and Liberbank by almost 2%. The bank led by Ana Botín is, nevertheless, the one that accounts for the greatest number of these loans over its total mortgage portfolio, with more than 27%.

Selling their own homes

The banks insist that they do not offer these mortgages for third party assets. They only do that in very exceptional cases when the borrower is very solvent or has guarantors, or is able to offer a double guarantee.

By contrast, they do offer this kind of mortgage on a mass scale to sell their own homes. In this case, the entities prioritise their aim to reduce the volume of properties on their balance sheets and to do this, they offer clients added benefits. In fact, these mortgages tend to not only have a higher loan to value ratio, they are also cheaper and are less onerous on clients in terms of contracting other products (from the same bank). (…).

Original story: Expansión (by Michela Romani)

Translation: Carmel Drake