What is the legislation and how does it affect borrowing in Spain
One of the more negative outcomes of the regulation changes on Mortgages in Spain has been the interpretation of the legislation that allows borrowers to request a change of currency on their loan after completion if they don’t earn their income in Euros.
It is believed that the new law was to protect those who elect or elected to take a currency loan. In the past Spanish borrowers have been convinced to take out a currency loan without a full understanding of what playing the currency game may mean.
Many ended up owing more than they borrowed as the currency fluctuations went against them and in some cases Banks ended up technically having to pay the borrower for the loan when currencies went in the right direction for the mortgage holder.
It was also brought in it is thought to protect in the longer term Spanish nationals and EU Nationals who took a mortgage in their country, moved to another country to work and ended up being paid in a different currency to the original loan they contracted.
The key problem is that each Spanish bank is taking a different view on what the legislation means and the potential impact on them at a later date.
Negative impact of legislation on currency of earnings
Some have decided that that the loan legislation only applies if you are a EU citizen at the point you take the loan. This has potentially for UK borrowers meant that as current members of the EU they could request a change in their loan currency at a later date as they earn in sterling.
The impact has been that many lenders have now withdrawn for UK borrowers in Spain the ability to opt for a fixed rate. Fixed rates require the Spanish Banks to buy in long term funding, this funding is in euros so if at a later date the loan applicant requests a change of currency then the Bank may make a significant loss if the cost of funding this is more than the price they paid for the original funds.
Others have decided that they have sufficient capacity within their treasury departments to deal in other currencies such as sterling and have not withdrawn the ability for fixed rates to be taken.
Some lenders have decided they will only lend to applicants who earn the majority of their incomes currently in euros.
A few lenders have just stopped lending at all to non resident applicants who do not earn their money in anything other than major currencies.
Some banks have decided the law covers everyone not just EU citizens although why they have taken this view at such an extreme when other lenders have not is an example of how confused everyone is. Sometimes lenders just think the best way not to get caught out is not to lend at all.
One lender has a very complicated chart of who they will lend to and on what basis. This affects whether a loan can be secured but also on what basis. It depends on what nationality they are, where they are currently resident and what currency they currently are being paid in.
Loan offers in Spain being pulled at last minute
Over the last few weeks a number of mortgage applications made direct with lenders have been pulled at the last. Minute because the lender in Spain. has decided they can no longer lend in the situation of the applicant.
This has affected mainly applicants who live and work currently in Middle East or Far East and earn currencies which the lenders will not be able to deal with at a future date. As a for instance, an expat who is a British passport holder and therefore a EU citizen currently who works and earns currency in the Middle East will find that most lenders are not willing to lend at all. If they will it, in the main will be only on a variable rate.
An applicant who is not a EU citizen working and earning in Middle East and paid in Dirhams will find some lenders will not lend at all, some will lend but only a variable rate but most will have kept their previous criteria on lending facilities to a non European applicant as they do not believe the legislation allows for a currency change in first place.
In general, all be it on variable rate most lenders are maintaining facilities for those who earn their incomes currently in GBP, CHF, US and Canadian Dollars. For most of these applicants thought fixed rates will not be an options.
Some developers in Spain who have sold off plan are now getting concerned their buyers may not be able to find solutions when it comes to closing.
The best way forward for Spanish non resident applicants, who have been affected by the changes and need a new loan agreed asap, or are now looking to apply for a mortgage and want to have access to everything available in the market is for them to gain access an intermediary who has the ability to look at a number of lenders and subject to status, can still get loans at the best possible loan to values and provide both fixed and variable rate options whatever the circumstances of the applicant.