Spanish Banks Adding Compulsory Products To Mortgage Terms


Increasingly all banks in Spain have been adding compulsory and for them profitable products to their mortgage offers.

It is in fact not legal in Spain for the banks to tie clients into products outside buildings insurance and a bank account unless the client gains a rate benefit for doing so. This seems to however be making no difference to the banks insisting on clients taking up; in particular life insurance; for the benefit of having a loan.

Where a bank links the rate or margin above Euribor to the taking of a specific product this will be written into the mortgage deed and should you cancel the linked product during lifetime of loan a new higher rate will automatically be applied. Whilst having the reduced rate may appear attractive, the cost of the linked product each month needs to be added to the monthly payments and often makes the overall terms more expensive than a higher rate without. If life insurance is required by the you this is of course not an extra cost and the lower rate may be of benefit but if life insurance is not necessary then this is just another sum of money on top of costs expected.

For banks that do not provide a specific rate linked to products; to gain an approval clients may however still find themselves being blackmailed into taking an insurance policy just to get an offer. Whilst it is not legal to insist a client takes the product a bank can of course reject an application without giving rationale so playing the game to get an approval is the pragmatic approach most clients will take.

Under this scenario however whilst the client may have to sign up for life insurance in year 1 the insurance requirement cannot be embedded in the mortgage deed and if the client cancels policy after year 1 there is absolutely nothing a bank can do to force client to take it in subsequent years.

Because of the cost of extracting yourself from Spanish mortgage terms at a later date; it is important to check if life insurance is being stated as compulsory for an offer of lending and whether this is going to be written into mortgage deed and linked to a rate or not. You can then assess what level of flexibility to dispense with the insurance cover at a later date you may have.

The poor behaviours of banks who are taking advantage of the overall difficulties in the worldwide lending market to force clients into taking other products immaterial of whether they are required or not is extremely frustrating. The law, which should assist to stop this happening, is toothless because it only relates to a completion and ability to place requirement in a mortgage deed; banks can do what they like when deciding whether to complete on a particular application. One lender in Spain “Bancaja” have a central risk department team that underwrite and approve an applications but the branch managers of the local branches who have the final say can, and often do, refuse to complete unless life insurance is added so if you want the loan you have to sign up or go without the mortgage even though you fit bank criteria.

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