Abusive minimum floor rate clauses declared null and void by the Spanish Courts.
What is a floor rate clause?
These clauses fix the minimum interest rate payable in variable rate mortgages providing that the interest payable cannot fall below a certain level, typically 3-4%, regardless of any drop in the reference rate.
This means that when the reference rate falls, there is no corresponding reduction in the interest payable by the mortgagee. With the Euribor (the typical reference point in variable mortgages in Spain) currently at 0.577%, this means that mortgagees continue to pay the capped interest rate and the monthly payments are not reduced. The difference in the interest paid and what would be paid if there was no floor rate can be considerable, with the mortgagee paying up to two or three times more the amount of interest each month.
Why have they been declared null and void?
A Spanish Supreme Court ruling of 2013 found these clauses null and void for failure to comply with the requirement for total transparency - when signing the mortgage, the bank has failed to bring this clause and its implications to the attention of the consumer. The Andalucian High Court has more recently gone a step further and ordered the return of overpaid monies to the consumer.
Such floor rate clauses are present in many mortgages signed by non-residents who have purchased a second home in Spain. Such non-residents may not be aware that they are paying interest way over the reference rate, and may qualify for relief on the grounds that the bank did not make them aware of the floor rate clause.
Each case would have to be considered individually however, as ultimately the decision will turn on what information was given to the consumer and whether the term was understood.
If you consider that your mortgage contains or could contain such a clause, or any other abusive terms, we suggest you get in touch with us. We will undertake a no obligation review of your mortgage terms to see if you could benefit.
This article is intended as general guidance only – specific legal advice should always be taken.