Spanish Mortgage ‘Floor Clause’ Claims Experts
If you had a mortgage in Spain between 2008 and 2013 then you could be owed thousands in compensation after the European Court of Justice ordered 40 different Spanish banks to refund their clients all the money they had taken on unfair mortgage floor clauses. So why not join the thousands of others who are making a claim against your spanish bank?
So are you affected and could you claim back up to 15,000 Euros on this Spanish floor clause?
The banks have put aside an estimated 3 billion euros to cover the total of 1 Million+ people who they know are affected by this and will make a claim for compensation so there is a good chance that you could be owed something. Some of the banks listed as having the floor clause in Spain have subsequently merged and become new banks after the banking crisis so you will need to ask us to check this for you. What do you have to lose by looking into this Floor Clause claim? Essentially nothing apart from a bit of form filling so we can check if you are affected as we operate on a no win, no fee basis. If you do not have money owed you will pay us nothing and if you do have money owed in the Spanish mortgage floor clause then we will help you claim it back.
What actually is the Spanish Mortgage Floor Clause? The amount you pay in monthly mortgage payments is linked to a % interest rate so as the interest rate on which your mortgage was linked to, falls, then so the amount you pay monthly will lower and conversely if the rate goes up, then you pay more. That is standard practise for certain types of mortgages but what happened in this case was that the banks introduced a ‘floor clause’ in the terms and conditions of the Spanish mortgage. This floor clause stopped the amount you pay falling below a certain level so even though you should have only been paying 1% for example the bank held the level at 3%. This may not sound like a lot but when you look at that difference in amount on the total size of your mortgage, taken over a few years then it certainly adds up! This floor clause in effect imposed a minimum interest rate on variable-rate mortgages by setting a limit on how far mortgage rates can fall and essentially ignoring the benchmark rate. What this meant for you was that as a Spanish mortgage owner you did not profit fully from the record-low interest rate environment at that time. This floor clause was ruled as illegal in 2013 by the Spanish High Court but that anyone affected by this floor clause before the ruling, would not be eligible for a refund. So even though they agreed the floor clause was illegal, no one was to be compensated for that irregularity! The point was raised to the European Court in Luxemburg where a ruling in mid December 2016 ruled that the Spanish High Court ruling was over turned and opened up the refunds to everyone.
Why did no one explain this Mortgage Floor Clause to me when I signed on my Spanish Mortgage?
The floor clause had become a normal part of a large number of Spanish mortgages at the time and with the interest at the level it was, then the effect of the floor clause was unfelt. It was only as the banking crisis hit that the full effect of the floor clause was felt and the clause in the mortgage become relevant. It is unlikely that within a 40 page mortgage document written in Spanish, you would have noticed the existence of this florr clause or thought that it was likely to affect you that much. So do not feel too bad that you missed it as millions also did! It has also been called a Ground Clause so bear that in mind when looking.
So what can you do about making a claim for what is rightfully yours in over paid floor clause payments?
- Contact us with some basic information and we can assess if you were affected by the floor clause in Spain and we will give you an estimate on how much you are likely to be able to claim back. The legal ruling stated that the bank must reply to your floor clause claim within 30 days and that they must settle the claim within 3 months so they cannot tie you up in the Spanish legal system for years. Once we have successfully completed the required paperwork for you and submitted it to the bank then we will monitor its processing and push for a swift resolution of the claim. Once the floor clause claim amount has been agreed and you have signed the release paperwork then we will refund the money directly to a bank account of your choice.
- How much can I expect to claim back on this Spanish Floor Clause?
The amount you can claim back will depend on the size of the mortgage and the amount of years that the rate passed below the floor interest rate. On average we are seeing claims amounts of 3,000 euros per year so approx 12,000 euros in total but up it could be up to 15,000 euros.
Is this Floor Clause a new problem that has recently come up?
The use of a floor clause had been in operation for many years in Spanish banking, and was seen by the banks as a useful way to keep the risk or extremely low interest rates under financial control. However approx 10 years ago, the original scheme was deemed corrupt to a point in which it has taken the Spanish Supreme Court to issue a Judgment in order to protect the consumers / mortgagees from the constant abuses that the banks inflicted on them. The issue started to be recognised as a problem between 2001 and 2003 as thousands of properties were being sold every year in Spain (many of them to foreigners, as second residences), and thousands of mortgages were agreed to finance those purchases.
In a huge push to keep the flow of new clients, the local banks had to look for fresh ways to attract new customers. In the midst of what is now widely recognised as irresponsible lending practises they offered a way to appeal to the new applicants, looking for offers on mortgages The banks offered a ridiculous, almost unachievable, interest rate, linked to an also very low margin – ads reading “mortgage at EURIBOR plus 0.5 %” or very similar were typical for almost a decade.
The competition between the banks was fierce and they began offering lower and lower interest rates as the rush to attract new customers intensified. Since the EURIBOR rate was low (it started the decade at 3% and ended up in 2010 below 1%), a quick calculation provided attractive figures: the repayment costs would have been virtually nothing in the medium and long term, and with a lease it would be a profitable investment.
So what went wrong?
In the boom time of property sales in Spain very few customers would read the whole mortgage agreement before signing it, let alone having it translated into English and fully explained by an independent accountant or solicitor. Even if they did then the floor clause was considered common practise and therefore would probably not even have been mentioned as a problem anyway.
Typically the mortgage agreement was for a couple of years at a fixed rate, typically 3.5 %, but after that initial period, due to the rate then the monthly payment was going to be pretty low for the rest of the mortgage term. After signing the mortgage agreement, the borrower would start repaying the loans for the first few years, at the initial fixed rate, expecting a big reduction of the payments once they got to a variable rate. This was obviously attractive to purchasers and they leapt on these offers and if you can imagine that at the peak of the property bonanza there were over one million properties being sold every year in Spain. This was a boom for the banks also.
After some years into the term of the contract, the monthly repayments went up due to the floor clause. Customers obviously called their banks managers commenting on a mistake in the last month’s charge, but the reply they got was that there was nothing wrong with the charges – these were correct, all made as per the agreement and the floor clause. The floor clause was in the mortgage agreement. Going down to the smaller print of the mortgage deeds, conveniently hidden amongst the endless and tedious legalities (a mortgage agreement has normally about 50 pages of complex technical terms that are hard to understand even for a Spaniard not completely familiar with the legal jargon). No one mentioned it to the borrowers initially, but somewhere in the contract there was a clause setting the floor and cap levels. The floor clause meant that regardless how low was the benchmark or official mark linked to the mortgage (EURIBOR), there was a floor in place: a minimum interest to apply to the mortgage every month.
For instance, if the floor clause is set at 4 %, it didn’t matter that the Eurobor rate would go down to 1%, because if this happened the floor clause meant that the rate was not going to drop any lower. The borrowers complained about it to their banks but their complaints fell on deaf ears and the floor clause was upheld.
Well you signed the mortgage deed!
Was it unfair that you could not benefit from the cut in the interest rates of the reference rate (the EURIBOR had been below 2% for 4 years now, from 2009 to 2013? The banks did not think so but a growing number of customers started to swell and started legal action, to get this situation resolved in the courts. 'The floor clause is there in the mortgage agreement' was their remark, but nobody explained it clearly as it was clearly something the banks did not want to draw attention to! However, the banks refused firmly to discuss it, resorting in all cases to the same reply – you signed the agreement freely, and now it’s final and all its clauses are enforceable, there’s nothing you can do about it.
Time to bring in a brave European Judge
The European Courts ruled on 21st of December 2016 that ‘floor clauses’ were illegal and thus are considered null and void. This ruling is final and cannot be appealed so it has opened the doors to thousands of borrowers to claim what was rightfully theirs. It is estimated mortgage borrowers are owed €3,000 for every year as from 2009 onwards. On average borrowers, can expect an average payout to the tune of €15,000 after this landmark ruling. It is estimated Spanish banks will fork out between 4 - 7 billion euros to honour the High Court’s decision. This key decision taken by Europe’s High Court is a much-anticipated ruling that puts an end to a long winding saga that started over a decade ago. Somehow I think the banks would love to wind back the clock ten years to the boom times, and when no one had even heard about floor clauses!