Guide for Distressed Mortgagors: Support Options and Tools for Protection from Mortage Debt

We live in moments of uncertainty and risk for the thousands of Spaniards who subscribed to a variable rate mortgage in the past and who face the escalation of the amount of their installments every month. The rise in the 12-month Euribor, which is already close to 4%, promises to continue its course this year, a circumstance that continues to cause staggered increases in mortgage payments until sometimes leading them to become unaffordable.

That is why it is important to know what are the options for distressed mortgagors. Fortunately, there are tools designed to protect families in situations of maximum vulnerability. We tell you in this guide for distressed mortgagors.

Support measures for mortgage debtors in trouble

It is a fact that the vast majority of Spaniards need to apply for a mortgage loan to be able to access a home they own. This means that, in the event that we opt for variable rate products, we will be subject to the fluctuations of the market and, specifically, to the movements of the reference index. used by the borrowing entity, normally the Euribor.

Following the housing crisis of 2008 and the massive loss of homes by their owners, many things have changed and the protection for the mortgage debtor has been increasing.

Among other things, since 2012 there is the so-called Code of Good Practices. It contains a series of measures designed for debtors that meet a series of requirements and that are considered within the so-called “exclusion threshold”.

If you meet these requirements, you will have a series of rights that include the restructuring your mortgage debt.

Codes of Good Practice for vulnerable mortgagors

If the measures contained in the Code of Good Practices have been in force since 2012, with the Royal Decree-Law 19/2022 of urgent measures to protect mortgage debtors without resourcesapproved in November of last year, this protection mechanism is reinforced thanks to the creation of a new Code that is applied temporarily, in principle, until the end of 2024.

With it, it is about alleviating the burden of the rise in interest rates caused by the inflation that we are witnessing throughout the world.

To make all the information contained in these regulations more understandable and accessible, the Bank of Spain (BdE) has recently published a Guide to tools for the mortgage debtor in payment difficulties.

This synthesis is joined by a simulator, accessible from the Banking Client Portal, designed so that you can check if you meet the conditions to benefit from the Code, although you should assess this possibility with your bank. He simulator It also allows you to measure the impact of these measures on your mortgage debt in terms of installment, term, applicable rate or grace period.

Requirements to access the aid of the Code of Good Practices

Los requirements to access the measures of the Code of Good Practices They will depend on the type of aid you request. Basically, these are cheap type filters and, in addition, it must be your usual home.

Keep in mind that the requirements will also vary depending on which of the Codes of Good Practices you value when applying for aid.

Once you submit your application, the entity will verify that you meet all the requirements to be considered within the “exclusion threshold”, as well as the purchase price of the home, among other things.

If your request is viable, the bank will present you with a plan to facilitate the payment of the loan through a debt restructuring. In the event that this route is not possible, there are other measures, such as a debt relief or dation in payment of the home, in which case the financial requirements will be even higher.

Tools for the mortgagor in payment difficulties

There is a wide catalog of Aid for mortgage debtors in a situation of vulnerability or without resources, contained in both Codes of Good Practices. These are the different protection measures that you can access:

Mortgage Debt Restructuring

This measure consists of modify the terms of the mortgage loan to accommodate your current economic circumstances. You must request a restructuring of your debt from the entity and it must reply to you within a month with a restructuring plan. You can also submit your own proposal, which will be analyzed by the entity. If you reject it, you must justify your answer.

Among the modifications that can be carried out we find the following:

• The lack of capital It consists of setting a period of time during which only the interest accrued on the loan will be paid. In certain cases, this grace period may last up to five years.
• The extension of the repayment period It allows you to extend the life of the loan, recalculating the payments you will have to make. In the long run, it will mean paying more interest. In no case may the limit of 40 years from the date of granting the mortgage be exceeded.
• The reduction of the interest rate applicable during the grace period is another of the tools in favor of the debtor in a situation of vulnerability.

Removal of outstanding capital for the mortgage debtor

When the restructuring plan is not viable (that is, if the restructured mortgage payment exceeds 50% of the net income received by all the members of the family unit), there will remain the possibility of requesting that a removes or forgives the payment of a part of the loan. The bank may or may not accept the withdrawal request, there being different calculation methods to set the amount to be forgiven.

Dation in payment of habitual residence for mortgage debt

If after 24 months from your request, the restructuring is not viable and a withdrawal is not made, you can request the dation in payment, which implies the delivery of the home subject to the mortgage to fully settle the debt with the entity. In these cases, the entity will be obliged to accept delivery of the mortgaged asset by the debtor, to the entity itself or to a third party designated by the latter.

It can also be requested by debtors who have a restructuring plan approved and in progress who observe their inability to meet payments after 24 months from the restructuring request. In this case, the entity will assess the possible dation in payment.

Right to rent in case of foreclosure of habitual residence

This measure is found available to the debtor whose habitual residence has been foreclosed and whose launch has been suspended. A release is suspended when, in a foreclosure process, the home awarded is the habitual home of people who are in cases of special vulnerability and economic circumstances.

In any case, the application for rental of the habitual residence must be made within the 12 months following November 24, 2022 for suspensions prior to this date, or since the suspension occurs, for subsequent ones.

In exchange for this rent, you will pay a maximum annual rent of 3% of its value at the time the auction was approved. This value will be determined according to the appraisal provided by the debtor, certified by an approved appraiser. The lease will be annual, extendable up to 5 years at the will of the lessee. After this period, both parties may agree to an annual extension for another 5 years.

Moderation of default interest on mortgage debt

For reduce the financial burden of late payment interest to debtorsthe Code also contemplates its reduction.

From the moment you request the application of the measures of the Code of Good Practices and prove that you are in the exclusion threshold, the default interest that will be applied to the outstanding capital of the loan will be, maximum, that of the remunerative interest agreed plus 2 points.

Tax and notarial advantages for the mortgage debtor

Finally, the measures of the Code are accompanied by certain exemptions and bonuses with respect to taxes and duties that may be applicable, both in the case of debt restructuring and dation in payment.