Government to lower penalty interest rates on home loan defaults

After the European Court of Justice ruled that Spain’s mortgage law breached European regulations on protecting consumers, the government on Friday said it would introduce further amendments to new legislation currently going through Congress.

Speaking after the regular Friday Cabinet meeting, Deputy Prime Minister Soraya Sáenz de Santamaría said the administration had set up a working group to decide on the changes that are needed to comply with European rules. She said these would include lowering penalty interest rates charged for failing to service mortgages on time, and increasing the default period that can trigger foreclosure action to three months from one month.

Santamaría said that while the European court did not term the current mortgage law per se as abusive, the government would look into any abuses banks commit in mortgage contracts. “We are going to strengthen the ability to detect abusive clauses.”

The European court’s ruling effectively empowers judges to suspend eviction proceedings while they examine any claims of abusive elements in a mortgage contract.

Dation in payment pushes up interest rates and reduces the money lent by banks”

“It is our obligation to analyze, evaluate and adopt the measures that are necessary,” the deputy prime minister said. She pointed to the fact the government had already moved to suspend eviction proceedings in urgent cases and blamed the opposition for the failure to put into place other measures the European court is now asking for.

Santamaría questioned the demand of the Mortgage Victims Platform (PAH) for the introduction of so-called dation in payment, whereby a homeowner can settle their mortgage obligations by handing over the keys of the home to the lender. Currently, even when a bank repossesses a property the mortgage holder is still responsible for settling any outstanding debt.

“The ruling refers to certain aspects of the mortgage foreclosure process,” Santamaría said. “The formula of dation in payment pushes up interest rates and reduces the money lent by banks.”

Earlier Friday, there was an urgent petition by all of the groups within the opposition for the application of the current mortgage law to be immediately suspended. The spokeswoman on housing for the main opposition Socialist Party, Leire Iglesias, called for “all mortgage foreclosure proceedings to be frozen in order not to apply a law that is unjust."