The figures:

  • 6 Million Mortgages in Spain.
  • Cost of the mortgage floor: 1,000 on average per year per family.
  • Potential loss on earnings for banks if floor clause is cancelled: 1,137 Millions

What is the floor clause in a mortgage? A floor clause prevents the borrower from benefiting from a reduction of the mortgage rate which is dictated by the variable interest rate benchmark. Spanish mortgage companies use the Euribor the most.

Latest news: The Spanish Supreme Court has issued an important Judgement declaring all floor clauses null and void in mortgage agreements, as of May 9th 2013.

The Supreme Court stated that banks will have to show transparency, as required by law.  Clients must have the small print explained to them when they arrange a mortgage contract by the lender.  Any mortgage floor clauses which do not meet the transparency requirements will be considered null.

BBVA, Cajamar and CaixaGalicia have already decided to remove floor clauses. Half a million clients were affected by this clause at BBVA. Therefore mortgage deeds will have to be amended accordingly.

Nevertheless, Sabadell and Popular still defend transparency on their contracts and refuse to lift the clause at present. Sabadell and Popular Bank have 12,000 millions and 12,700 millions with floor mortgages respectively, while Bankia only has 4,000 millions.

However, Santander, Bankinter and Ibercaja never included floor clauses in their mortgages.

Considering the Euribor rate is as low as 0.5%, which is the benchmark for most for mortgages in the euro zone, and with most floor clauses at 4%, the savings for borrowers might be significant and estimated to be 1,000 per year on average.

Many clients may now have the opportunity to push the banks and request these mortgage floor clauses to be removed from their deeds.

The Supreme Court ruling does not pursue removing clauses on mortgages that were explained to customers in a clear and transparent way, but this not might be the case for most Foreign borrowers as it could be highly difficult to demonstrate that even small print was explained in detail at the time of completion.

Always seek professional advice from your Law Firm