After decades of operation of a mortgage market that has provided access to homeownership for millions of people in Spain, the economic crisis that began in 2008 exposed, at a high social and economic cost, some weaknesses upon which this market was based.<\/p>\n
Despite the social tragedy of thousands of families losing their homes as a result of the crisis, 94% of mortgage loans were paid without delay at the worst moment of the crisis, which demonstrates families’ commitment to meeting the obligations arising from one of the most important financial decisions of their lives. Even so, there has been growing litigation and unbearable legal uncertainty, making it necessary to implement the transposition of a European Directive that Spain should have completed almost three years ago, and to adapt real estate credit legislation to current circumstances in order to continue promoting access to homeownership under the best possible conditions. <\/p>\n
In this regard, the new Law Regulating Real Estate Credit Contracts approved by Congress represents a step forward in the process of clarifying and processing mortgages, provides greater security to the market, and strengthens the information system but, above all, it is a law that tends to protect consumers above any other consideration and is expected to shield banks and their clients from disparate and often inconsistent judicial decisions, which should ultimately reduce the number of lawsuits.<\/p>\n
Many of the aspects regulated in this new Law tend to strengthen the security of banking clients without serious detriment to the system. In this regard, it should be applauded that it promotes a rigorous examination of solvency and financial knowledge that banks and notaries, respectively, must conduct with their clients. Similarly, it is healthy to consider the transparency with which the new Law limits certain clauses, promotes stability, and reinforces certainty. <\/p>\n
However, the law contains other elements that, while maintaining the spirit of client protection, may have a significant economic impact on many of the agents involved and may even produce unintended effects. In this regard, it is worth highlighting the risk that could be incurred regarding the availability of fixed-rate mortgage credit, due to the notable limitations that the regulation imposes on compensation arising from clients’ right to prepay their mortgage credit. Similarly, restrictions on mortgage enforcement weaken loan guarantees, increase banks’ financing costs in wholesale markets, and reduce their capacity to properly manage their balance sheets. <\/p>\n
The Real Estate Credit Regulatory Law has been approved by Congress at a time when the real estate sector is experiencing strong momentum derived not only from very favorable economic conditions, but also as a result of the sector’s constant professionalization and the soundness of the banking sector, which is much more capitalized and solvent than in the past but, above all, much more prudent.<\/p>\n
However, as the law is a living instrument, it will be necessary to assess in the future whether strengthening guarantees and client protection is compatible with the continued dynamism of credit at a time when certain trends are emerging that could limit the effectiveness of this new legislation. Specifically, the monetary policy designed by the ECB should begin to be more restrictive than in the past, as some reference indices such as the Euribor are already beginning to indicate, which could worsen housing affordability and require greater effort in purchasing a home. <\/p>\n
In the medium term, the combination of two parallel phenomena, such as young people’s low propensity to own a home (either due to weak attachment to the traditional culture of ownership in our country or due to difficulty accessing the real estate market) and the accelerated growth of cities as centers of knowledge production, could require a new social housing policy and a rental policy that incentivizes increased supply and thus complements the new Real Estate Credit Law.<\/p>\n
In the longer term, population aging in Spain could generate a significant reduction in organic housing demand, so public policies should be oriented toward rental, rehabilitation, and renovation, as is already the case in the most advanced countries of the European Union. A trend that is aggravated in Spain when considering that a high percentage of the housing stock is far from meeting minimum accessibility and sustainability conditions, which could change the structure of the real estate sector and the mortgage market in the future. <\/p>\n
In conclusion, the new Real Estate Credit Regulatory Law should be well received, not only because it will reduce litigation and legal uncertainty, but also for its capacity to shape in the future what type of society and country we want to build.<\/p>\n