Mortgage loans are essential tools for people who wish to purchase a home or other assets without having the necessary funds to buy them. However, despite being common financial products, it is common to find clauses in these contracts that heavily favour financial institutions, leaving consumers in a vulnerable position.
Unfair terms in mortgages have been a major source of conflict between banks and consumers in Spain in recent years. Since the economic crisis of 2008, the courts have handed down numerous rulings against banks, declaring certain contractual clauses null and void as unfair, due to their lack of transparency and the disadvantage they generate for customers.
In this article, we will explain what abusive clauses in mortgages are, which are the most common ones, how to identify if your mortgage includes any of them and what options consumers have to claim in 2024.
What are unfair terms?
Abusive clauses are contractual provisions imposed unilaterally by one of the parties, in this case the banks, which generate a significant imbalance in the rights and obligations of the contracting parties. These clauses usually disproportionately benefit financial institutions and harm consumers, either through hidden costs, lack of transparency or disadvantageous conditions.
Spanish law, in line with EU regulations, establishes that unfair terms are null and void and should not be applied, even if the consumer signed the contract without knowledge of its unfairness.
Most Common Abusive Mortgage Clauses
Over the last few years, different mortgage clauses have been declared unfair by the courts. Among the most common are the following:
Floor clause
The floor clause is one of the best known and most controversial. It is a provision that establishes a minimum limit to the variable interest rate of the mortgage, so that, even if the reference index (such as the Euribor) falls, the interest paid by the consumer can never be lower than a certain percentage (the ‘floor’). This means that mortgagors cannot benefit from interest rate reductions.
The Supreme Court has on several occasions declared these clauses null and void due to lack of transparency. The Court of Justice of the European Union (CJEU) ruled that banks should return to consumers all amounts overcharged since the signing of the contract.
Mortgage Formalisation Expenses
Another clause that has been declared abusive on multiple occasions is the one that obliges the consumer to assume all the costs of formalising the mortgage, such as:
- Notary fees.
- Notary fees.
- Property registry.
- Taxes.
- Valuation of the property.
The Supreme Court ruled that banks must bear a significant part of these costs, considering it abusive that all of them should be borne by the customer. Consumers have the right to claim the return of unduly paid expenses, such as notary, agency and registry fees.
Early Expiration Clause
This clause allows banks to demand full payment of the mortgage debt if the consumer defaults on a single or several instalments. The courts have declared that these clauses are abusive when there is no proportionality between the default and the decision to foreclose the mortgage, i.e. when the bank is allowed to demand the full amount of the debt for a one-off default or small delay.
Following the rulings of the CJEU and the Supreme Court, financial institutions can no longer trigger foreclosure immediately, but must wait for a prolonged or significant default.
Abusive Default Interest
Late payment interest is the interest charged when the consumer is late in paying a mortgage instalment. The courts have considered that many of these interests are excessive and abusive, especially when they exceed the ordinary interest rate of the mortgage by more than two points.
The current regulations establish a limit for this interest, which cannot exceed 3% of the interest rate, which has been ratified by various rulings of the CJEU and the Supreme Court.
IRPH (Mortgage Loan Reference Index)
The IRPH is a reference point used in some mortgages as an alternative to the Euribor. Over the years, this index has been the subject of controversy because it is generally higher than Euribor, which means that consumers pay more interest.
The CJEU has issued several rulings in which it considers that the lack of transparency in the marketing of mortgages referenced to the IRPH can make them abusive, especially if the client was not adequately informed about how this index was calculated and its consequences.
How to Know if You Have Abusive Clauses in Your Mortgage
To identify if your mortgage contains any of these abusive clauses, it is essential:
- Review your mortgage contract: The first step is to review in detail the conditions of the mortgage loan. Contracts usually include an annex where the terms of the variable interest rate, commissions and other conditions of the loan are specified.
- Seek legal advice: Due to the complexity of mortgage contracts, it can be useful to have a lawyer specialised in banking law to help you identify possible abusive clauses and guide you through your legal options.
- Consult recent case law: Court rulings on unfair terms are a good indicator of practices that the courts consider unacceptable. It is advisable to keep up to date with the rulings of the CJEU and the Supreme Court in this area.
How to claim abusive mortgage clauses?
To initiate this procedure, it is recommended to hire a lawyer specialised in mortgage clauses and at Bufete Lexnova we are specialists in banking law. First of all, an out-of-court claim must be submitted to the corresponding bank, requesting the nullity of the abusive clause(s). If an agreement is reached, the bank will have to pay back the relevant amounts. If not, a lawsuit must be brought before the competent courts.
There are other unfair terms, but in this article we have summarised some of the most common ones. Each case is different, so it is important to carry out an in-depth study by reviewing your mortgage loan.
Consequences of the Nullity of Abusive Clauses
When a clause is declared abusive by the courts, the consequences are as follows:
- Nullity of the clause: The abusive provision is removed from the contract, but the rest of the mortgage contract remains valid.
- Return of amounts: The bank is obliged to return the amounts that have been unduly charged due to the application of the abusive clause, including interest.
- Readjustment of the mortgage conditions: In some cases, the elimination of the clause can lead to a readjustment of the loan conditions, such as the recalculation of the interest rate or the outstanding balance.
Conclusion
The abusiveness of mortgage clauses remains a key issue in banking law in Spain, and many consumers have been successful in recovering significant amounts through claims and lawsuits. Identifying and claiming these clauses is not only a right, but can considerably alleviate the financial burden of many families.
At Bufete Lexnova we can help you with your mortgage clauses, contact us and book your appointment.