The restriction on the granting of mortgage

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Loans as a result of the application of the article 20 of Law 5/2019 on 15 march of real estate credit

The transposition of Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 became five years later the so-called Law on Real Estate Credit, with the aim of annihilating those considered by the Jurisprudence as unfair banking terms, increasing transparency and legal certainty, maintaining a balance between the benefits of the parties, and also extending its effects to all home mortgage financing, as a consumer or self-employed.

After one year since its entry into force, the result of its application has generally been a decrease in the granting of mortgage loans, as well as a slowing down of the deadlines for their approval, all caused by the ten calendar day period established in article 10.1 of this Law for the participants to examine the conditions and granting of the Transparency Act prior to the signing of the Mortgage Deed, as well as the electronic means used for this purpose, which are not always accessible to the applicants, and which do not always work properly.

In addition to the slowdown and decrease in the granting of mortgages for the above-mentioned reasons, Article 20 of the aforementioned Law introduces an instrument of protection against exchange rate risk when the borrower habitually receives his income in a currency other than that in which the mortgage loan is contracted, so that the contracting party is allowed to change the currency of the mortgage granted in Euros, to the currency in which he receives the majority of his income or to the currency of the State in which he resides at the time of conclusion of the contract or at the time of requesting the change.

Without going into further details, this article transfers the exchange rate risk between currencies from one of the contracting parties to another, in this case the Financial Institution, which has no option but to accept the redenomination of the loan once it is requested.

Failure to comply with any of the measures contemplated in this article 20, such as the obligation to periodically report the amount of the mortgage and repayment in both currencies (unavoidable when it exceeds 20%), to include an example of a variation in the FEIN rates, etc., will render the multi-currency clause null and void, the effect of which will be to consider the loan as if it had been granted from the outset in its own currency (not Euro).


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