Due to the Economic Crisis in 2008, Coronavirus Pandemic and Recession in 2020, lots of families are unable to keep paying their mortgages in Spain. Most of them have RE-NEGOTIATED new terms and conditions of their mortgages with their lenders/banks in order to adjust their mortgages to their new circumstances. This action is called NOVATION (“novación” in Spanish).
REUTERS SOLICITORS always recommends to contact the lender/bank and express your financial problems in order to find a proper solution of your case: NOVATION OF YOUR MORTGAGE TERMS.
The sooner you find a solution to your financial or economic problem in Spain ….. the better.
We explain you all you need to know about a Novation in Spain in this post.
What is a novation in Spain?
Personal and economic circumstances can change during the mortgage´s life, which can affect your availability to meet monthly mortgage payments.
A novation in Spain is whatever change is made at the mortgage conditions which have been negotiated by the client with the lender/bank.
Therefore, a novation is useful to improve your mortgage conditions.
Please be aware that Novation in Spain is not similar to the Novation process that you could make in your home country. Cases, process and requirements are completely different from the ones you know so far.
Which are the most common cases for a novation?
Although there are lots of Novation possibilities, these are the most common:
- Negotiate the interest rate of the mortgage.
- Adjustment the period of the mortgage.
- Amendment the outstanding mortgage balance of the mortgage.
- Modification the holder of the mortgage.
1.Negotiate the interest rate of the mortgage.
With this rearrangement we look for a modification of the interest rate previously agreed at the mortgage.
It can be done either changing the market spread/ differential (“diferencial” in Spanish). (i.e.: the mortgage said Euribor + 2% and it is change to Euribor + 1%) or changing the fixed rate to a variable interest rate when this change is more beneficial for the client.
2. Adjustment the period of the mortgage.
The period of the mortgage can increase or been reduced in a novation. However, if you are overwhelmed for meeting your mortgage payments, you will need to widen the length of the mortgage.
3. Amendment the outstanding mortgage balance of the mortgage.
This rearrangement consists of broadening the loan capital when you cannot meet your mortgage payments.
4. Modification the holder of the mortgage.
This rearrangement is not useful when you cannot meet your mortgage payments. It is thought for other purposes. (i.e.: if you get divorce and one of the members wants to keep the property).
Requirements for a Novation
- The lender/bank may require some financial documentation in order to study the viability of the novation. It would be convenient to prove that your financial and economic situation has changed to a worse position.
- Once the lender has agreed to make a novation, it is necessary to change the mortgage terms by signing a Novation deed in front of the Spanish Notary and registered them at the Land Registry.
The registration of the deeds at the Land Registry is essential in order to legally lodge the new terms and conditions of the mortgage.
Which are the costs of a novation?
A novation involves some costs, which are:
- Novation bank´s commission: 0.5% of the pending mortgage.
- Valuation/appraisal of the property: €400 (the lender will determine whether or not an appraisal is necessary for a novation)
- Notary fees: €400 – €600
- Land Registry´s fees (*): €250 – €400
- Gestoria fees: €350 -€300
- Lawyer´s fees: €600- €800
- Taxes: Stamp duty (AJD – Actos Jurídicos Documentados)
Stamp Duty is a tax that each region of Spain (17 different regions) is allowed to settle the tax rate within a range between 0.5 and 1.5%. For instance, in Andalucia or Comunidad Valenciana, the tax is 1.5%.
However, after November 2019, Banks are paying all the costs of the process (except the novation bank´s commission) when the client makes the novation because he/she cannot meet monthly mortgage payments. This exception makes a novation much more handy and convenient for clients!
On a separate issue, there is another legal form to those clients who cannot meet their mortgages in Spain and their properties are in negative equity. This process is known as DACION EN PAGO and it consists of handing back the keys to the lender.
Even if you are a non-resident in Spain and your Spanish mortgage is in arrears, you can be affected by a foreclosure process and an eviction if you do not meet your mortgage payments.
REUTERS SOLICITORS recommends to contact the bank and start negotiations with the assistance of an expert lawyer in mortgages.
REUTERS SOLICITORS continue to represent clients who have difficulty paying their mortgage in relation to their property in Spain.
If you have a mortgage in Spain and are struggling to meet the monthly payments, please contact us.