Mortgage Clause in Spain, Minimum Interest Rates Invalid
by Andrea Lechtape
The most recent judgment by the Supreme Court on the subject of MINIMUM INTEREST RATES in mortgage contracts could have advantages for many consumers.
Over the last ten to fifteen years, in their mortgage contracts concluded with private individuals, many banks in Spain have incorporated a clause that has created upper and lower limits for the mortgage interest rate.
This clause has become known as the "bottom clause" and has the effect that the borrowers involved cannot profit from the clear decrease of EURIBOR.
EURIBOR represents the average interest rates at which European banks borrow funds from each other in Euros; the EURIBOR rates serve as a measure for mortgage interest rates.
The Supreme Court recently ruled that the bottom clause is to be declared invalid. This does not mean that the clause per se is invalid, but it is invalid if the mortgage contract in its totality is not transparent, and the consumer has not been informed about the clause.
Many of our customers, usually foreign residents with real estate on Lanzarote, have told us in personal conversation that they were not informed about the bottom clause, that they had only learned about it from the notary or the translator, and that they have had no opportunity to change the contracts.
Other customers still have no knowledge of this and only realized it years after the purchase, when Uninex Services in cooperation with its partner, Attorney Santiago Lleó, reviewed their purchasing documents.
Three major banks have already deleted the clauses from their mortgage contracts, including BBVA, which is represented on Lanzarote. Other banks, such as Banco Popular, Banca March, and Solbank, are taking the view that the clauses will not be removed unless the Supreme Court tells them to.
Most bottom clauses are fixing the interest rate between 3% and 4.5%. Considering that the EURIBOR rates are presently in the vicinity of 0.5%, the invalidity of the clause could mean an interest reduction of 1.5% to 3%. With a loan of 180,000 €, the burden could be reduced by about 200 € a month. Accumulated over 20 years, the savings would amount to about 50,000 €.
The judgment is not always applicable, only if it can be proven that the bank clearly failed to inform the customer. That is why every case should be reviewed individually before a successful action can be brought against the bank.
In any event, we recommend a conversation with our partner, Attorney
Santiago Lleó. You will reach him at our telephone number, 928 826691, or directly at his website, www.all-law.es.