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Expat and second home owners in Spain could be in line for compensation

Joanna Faith
Written By:
Joanna Faith

Borrowers with mortgages in Spain – including expats and second home owners – taken out in the boom years could be entitled to a substantial refund over unclear mortgage clauses.

Pre-2013, millions of mortgage holders signed variable rate contracts with ‘floor’ clauses, which set a limit on the minimum interest rate the lender can charge, regardless of how low Euribor (the rate most used to calculate mortgage payments in Spain) fell.

Euribor plunged during the 2008 financial crisis and has been negative since February 2016, yet many borrowers are still paying too much for their mortgage because of these ‘floor’ clauses, which campaigners say were not explained to mortgage applicants and were buried in the small print of contracts.

In May 2013 the Spanish Supreme Court ruled that any ‘floor’ clauses that had not been adequately explained to borrowers were “abusive”, and therefore null and void, entitling borrowers to a refund for overpayment, but only going back as far as May 2013.

The time-limit was contested by consumer groups at the European level, and on 21 December the European Court of Justice paved the way for reclaims with total retroactivity and no time-limit.

Spanish property expert Mark Stucklin from spanishpropertyinsight.com, said: “Recent mortgages taken out since 2013 are unlikely to have floor clauses but loans from before that date may have them, especially loans signed in the years 2007 – 2009. If you have not noticed any decline in your mortgage payments since 2008 it is likely that your mortgage contains a floor clause. Legal experts tell me that borrowers with illegal floor clauses will typically have been overcharged by a figure starting around €1,700 a year, potentially much more.

“Floor clauses only relate to variable rate mortgages, and it is often difficult to tell from your mortgage contract if you are the victim of an abusive floor clause because they tend to be buried in complex figures and terms (all in Spanish), which most foreign borrowers would struggle to understand.”

Class action

‘Floor’ clauses are not illegal so borrowers will have to go to court to argue the clause was not adequately explained to get it ruled null and void, explained Stucklin.

He is organising a class action claim against Spanish lenders for “abusive floor clauses”.

He is calling for people who took out a mortgage in Spain before 2013, and who think they might have been overcharged due to a floor clause in their mortgage that was never properly explained, to contact him here.