The minimum interest rate applied by financial institutions to many Spanish mortgages to protect themselves against a drop in the Euribor has led to an increase in the price of loans taken out prior to the crisis, of between €1,000 and €5,000.
This floor clause, also known as ‘clausula suelo’, was included in many of the mortgage contracts signed during the property boom, unbeknown to many home buyers themselves. The issue only began to gain widespread coverage when, in 2009, the Euribor – the interest rate on which 90% of mortgages in Spain are based – began to drop to below 2%, and such reductions were not reflected in how much people paid for their loan.
This was due to the policyholder’s mortgage contract outlining that they were required to pay a certain minimum interest rate despite the Euribor, plus their differential, being lower. While the banks have imposed limits of between 2.5% and 5.5%, the Euribor has long been below this level, forcing families ‘tied’ to the ground clause to pay an elevated mortgage rate.
How have the banks been able to get away with this?
In more recent times, they haven’t, with courts and consumer associations alike enjoying some success in achieving judgements against banks over a practice that is regarded as legal, but abusive.
However, the clause is thought to still be present in millions of Spanish mortgages. It is only applied when the Euribor plus the differential falls below the minimum interest rate, but in the event of the Euribor and the differential exceeding this minimum rate, the combination variable interest rate is used. This enables the bank to always charge the highest interest rate, whatever occurs with the Euribor.
One personal finance specialist has calculated that a mortgage signed in 2007 could be as much as €10,000 more expensive as a result of the addition of the ground clause.
What is happening now?
Such has been the strength of opposition from consumers to the clausula suelo and their success in the courts, many institutions have now begun to offer mortgages without the ground clause. However, the banks are also understandably reluctant to advise those with the clause still in their contracts how to make a compensation claim.
If you are taking out a mortgage for the first time, meanwhile, you should make yourself aware of any clauses that may apply and where any limits are fixed. Banks still including the ground clause in mortgage contracts may not mention it, while there are other factors that you should pay attention to aside from the spread when selecting a mortgage, the final value of which can be bumped up by commissions and other related expenses.
What is a Clausula Suelo or Floor Clause?
It is a clause in a Spanish tracker mortgage agreement that requires you to pay a minimum interest rate, even when the interest rate that the mortgage is tracking – such as the Euribor – is lower.
This means that you could be paying thousands of Euros more than you should be, and the Supreme Court has agreed that many such clauses can be considered abusive.