Rose FP

By way of general information, the average 'pay rate' on a new mortgage day is sub 5% - around the 4.5% mark.

HOWEVER, most mortgages in Spain are set periodically (like a Fixed Rate), the norm being annually. The norm is a margin over the Euribor annual market rate. At that review point, the rate trend over the last 1-6 months is considered to set the new rate for your renewal. The problem with this now, of course, is that, if you have recently renewed your rate, say in the last 3-6 months when the Euribor rate would have been higher, you are now paying a premium over 'new business'.

But what can you do? Frankly, not a lot as your executed a Contract with your lender and the terms would be set therein. There is no economic value in considering a remortgage unless there is another driver (for example, to get some cash out or to switch to 'Interest Only' as opposed to paying Capital and Interest).

If you are really struggling to make mortgage payments at present, due to the higher interest rate being charged or otherwise, your fisrt action point has to be to contact your lender and plead hardship! Lenders are under a lot of pressure already, primarily due to an over-aggressive lending policy in recent years, and they will not want another case on their hands. They may, just may, be prepared to allow reduced interest only payments until the next review when, if there is no upward increase in Euro lending rates from hereon (and I cannot see that happening this year) the contractual obligation will reduce.

AndyinTenerife

Definitely get down and see your bank if you have fallen into arrears.
They CAN switch you to interest only if they WANT to. If it looks like you cannot catch up with missed payments then it is pretty stupid of them not to help you.
Also ask them to cancel any missed payments - they can be added to the capital amount outstanding.

Lestie

It sounds suspicious that the banks here review the rate once a year, especially if they calulate it based on the last six months. My mortgage is due for review in June and they told me it would be based on the rate two months before the review date. I am therefore hoping that the rate goes down more before April.

I am in a good situation but my bank manager told me his review date is October which means he has to pay the highest rate until then.

Surely with this system you could end up overpaying quite drastically, which in these hard times seems a little unfair.

AndyinTenerife

That is exactly what happens unfortunately.
We get loads of enquiries for remortgaging. Many of them are La Caixa clients who have a Hipoteca Abierta, rate review based on two months previous and bank staff couldn't give a monkeys when they call up for help. We cannot subrogate to help either

Other trick banks have is to load on lump sum life assurance up front so 100,000€ mortgage, 18,000€ insurance policy tied in (you now pay interest on this amount!!!) and if you remortgage to a different bank they won´t refund it - Solbank love doing this! It is a terrible deal for clients and we never ever recommend it.

If you have a rate determined by the 3 month Euribor then your rate is reviewed every 3 months instead of once a year.

Lestie

Yes you guessed it, Solbank! i am going to check out thw life insurance thing!

AndyinTenerife

I tried contacting the Direccion General de Seguros about this as I had a client who had a massive amount added to their mortgage.
I cant see why it is not refunded if they switch lender after 2 or 3 years as they no longer need the policy.
I didnt receive a reply though. Also asked a conveyancing lawyer and an Insurance broker - neither knew where the client stood with regards to a refund.
I may be cynical but this looks like a very sly way for the bank to simply make an extra 15 or 20 grand. Definitely not in the clients best interests.
I know these "upfront" insurance policies have been all but outlawed in the UK very recently as they were deemed a rip-off.

Lestie

It seems to me that they are a little slow here in Spain to deal with what I would call a scam. I do hope bankers see some of the comments on this forum and I hope the names of some of these offending institutions have have been tagged to come up in the search engine results. I think they deserve a little bit of bad publicity!

Rose FP

Unfortunately - and ths is where many borrowers fall foul of the system here in Spain - the contract that you would have signed at Notary, the Mortgage Deed, would have covered these points but, of course, trying to pick up on such minutae under the pressure of that situation, without being prepared for such in advance, leaves the borrower in a cleft stick!

Rates - the review period will be detailed in the Deed. And, of course, the periodic review can work both ways. If rates rise, then there will be a lag in the increase in favour of the client.

Indurances - As I have said before, the provision of the bank's own policies is no longer mandatory, but most offer more favourable mortgage terms if these are taken up. Clients rarely understand this in advance!

AndyinTenerife

Whats the best way to entice a bank to switch a borrower to interest only?
I am getting loads of calls from expat residents who can tpay there mortgages anymore.
Cant remortgage them as they have little or no income, they have been to the bank and not got anywhere so far.
Just got off the phone with another today - told him to go back to BBVA, make an appointment with the manager and see if they will switch him for 6 months.

He is owed 34,000€, mortgages of only 17,000€ but monthly payments of 422€ (75€ interest only).
Income of 800€ per month self employed
I´ll speak to a new bank today but am really not hopeful.

Managed to switch another one last month with Solbank but BBVA wont even speak to me - only the client, annoying....
I have read about all sorts of plans and proposals to help out, Banco de España are encouraging leniency etc but how are borrowings supposd to actually take advantage of such measures?

Anyone having any joy in this area?

Rose FP

Hi Andy.

Yes, likewise here too.

It really does depend on the bank and their internal attitude to such. Some banks are being fairly positive and dynamic in reducing contractual requirements; others more difficult.

The lenders will only talk to the client so all that you and I can do is guide them. For sure, face to face is preferable and the clients have to be determined to get a result i.e. to keep banging away every 2 days; to become a thorn in the side!

Cold threats do not work but there is no lender that will want to take reposession of yet another property and clients should always bear that in mind!