Spanish mortgages in Spain

Homeowners do not always benefit from the drop in interest rates.

The official rate with which most mortgage repayments in Spain are calculated, the Euribor s falling but that does not mean that all home owners will reap the full benefits of the decline.

Ausbanc (the association of users of banking services) has warned that the small print of around 90 per cent of mortgages in Spain includes a “collar” that prevents the interest from falling below a certain amount, normally between three and five per cent.

So although, the Euribor has reduced to around 1.5% many homeowners are still paying over 5% on their Spanish mortgages. Furthermore, owners with mortgages based on the annual euribor may have there mortgage based on a rate set last year and with no room for review until the official review date.

The collar can, of course work the other way and protect home owners if the rate goes higher than a certain limit but that is little comfort to homeowners at the moment.

Ausbanc says that writing in a collar clause is perfectly legal, as the bank and customer sign the agreement before a public notary, but in reality few people know that these limits exist.

Clients effected by this should seek independent advice from a reputable broker. It may be possible to re mortgage to a different lender at a much reduced rate of interest.