Information for Floor Clauses in Spanish Mortgages
Do you have a Spanish mortgage? Does it have a floor clause? If so, you maybe entitled to a claim against your bank for the interest that has been charged.
Our Head of Litigation at MLS, explains more about mortgage floor clauses.
The European Court of Justice (ECJ) has declared floor clauses in Spanish mortgages illegal. Good news for consumers as some banks will have to return the extra interest paid by clients whose mortgages had these clauses. Read on to see if you could be entitled to a rebate from your bank.
What is a floor clause?
It is a clause, included by some banks in a mortgage at the time the mortgage deed was signed. The clause sets the minimum interest rate to be paid by the borrower even though the Euribor rate and your interest rate in the deed maybe lower. For example if your mortgage states Euroibor plus 1% but you have a floor clause of say 2.75% and above, you will pay interest at the rate of 2.75% and not the lower rate. The Euroibor rate has crashed with the banking crisis but many Spanish property owners with mortgages have not seen the benefit of lower interest rates. This floor clause has been declared illegal, when not transparent, by the Spanish Supreme Court and now backed up by the ECJ.
Check your mortgage deed or bank statement to see if includes a floor clause?
Check your mortgage deed to see if it includes a floor clause. The deed will set a limit on the interest that can be charged by the bank. The clause normally appears in the financial conditions section. Usually the wording of the clause is as follows: “In no case shall the annual nominal interest rate, resulting from each variation, be greater than X% or less than X%“. In such case, the mortgage would have both a ceiling and the floor clauses. A ceiling clause is the highest rate you would pay interest at.
If you cannot locate the clause in your deed, check your last bank statement where your mortgage payments appear. If the interest rate that appears is not the same as the Euroibor rate plus your agreed interest rate, then your mortgage deed has a floor clause.
Does the recent ECJ ruling invalidate all floor clauses?
No, it does not. The judgement only refers to floor clauses that have been declared void due to a lack of transparency. If a floor clause is considered illegal because of a lack of transparency, then all interest paid at the higher rate in the mortgage deed can be claimed.
When is a floor clause transparent?
Floor clauses are legal when their transparency has been proven. The transparency test involves satisfying two conditions. The first, that the clause is written in a simple and understandable grammatical structure and in a way that it is possible to be read easily. The second, is that the bank has fully informed the client about the floor clause before the mortgage deed is signed and its consequences. For example, some banks provided interest rate simulations to their clients regarding the costs of the mortgage if the applicable interest rate was a transparent floor clause.
What do I do if my mortgage has a floor clause that is not transparent?
Send us a copy of your mortgage deed to review, at no cost, along with a recent bank statement where your last mortgage payment and the applicable interest rate appears.
How many and what type of mortgages does the floor clause affect?
97% of Spanish mortgages are variable interest rate mortgage which refer to the Euribor rate. According to the Bank of Spain, between 30% and 40% of such mortgages include floor clauses which are illegal.
For a free consultation and review of your mortgage deed contact enquiries@mylawyerinspain.com. Send us a copy of your mortgage deed and recent statement.
