When contracting a mortgage loan, it generates various expenses (taxation, taxes, registration, notary fees, administration fees, etc.) that have to be paid by the bank and the customer. But who should pay which costs? This is a question that comes to many people’s mind when considering taking out a mortgage loan.
In recent years, the answer to this question has changed due to the Spanish Supreme Court rulings and Law 5/2019 of 15 March, which regulates real estate loan contracts. Note; this law only refers to the formalization expenses of the mortgage loan and not to the cost of buying or selling property. Nowadays, much of the notary and registration fees, among others, have to be be paid by the bank. The usual practice in the old days of sharing these costs between the bank and the customer, without forcing the customer to bear them in full (before 2019), is no longer in line with the law.
What kind of costs can there be when establishing a mortgage?
- Taxation (Nota simple). To determine the actual value of the property one wants to buy, a taxation must be carried out. The bank will use this data to calculate the mortgage loan. The cost of this can vary and be as high as 500 euros. The customer can choose the company that will carry out the taxation. A nota simple (´up to date´ extract from the title deed) is sufficient for the bank. It is better to arrange this document yourself than have the bank arrange it. It costs less than 10 euros, while the bank will charge much more. You can apply for this document at the property registry.
- Notary. After approval of the mortgage application, the contract is formalised in a notarial deed. For this work, notaries charge between 0.3% and 0.5% of the mortgage debt (the amount of the mortgage debt is stated in the mortgage deed). In addition, each party has to pay for its copy of the deed which usually costs around 50 euros.
- Registry. There is an obligation to register the mortgage in the property registry. The amount of this expense will vary between 0.1% and 0.3% of the mortgage debt.
- Administration office. Individuals usually engage an administration office (gestor) to help them with the procedures for buying a property, including, for example, tax settlement. This usually costs between €300 and €400.
- Taxes. Specifically, after a mortgage loan, the so-called stamp duty (Impuesto de Actos Jurídicos Documentados) has to be paid. This varies depending on where the mortgage is signed, but usually it is between 0.5% and 2% of the mortgage debt.
Starting in January 2019, several judgments from the Civil Chamber of the Supreme Court (specifically numbers 44, 46, 47, 48, and 49 of 2019) established that since the work done by the notary benefits not only the individual but also the bank, the bank should also contribute to the expense, sharing it equally.
Regarding the registration fees, the Supreme Court concluded that the bank should bear them since it is the primary beneficiary of the registry entry of the mortgage. However, this changes when the loan ends, as from then on, the individual has the registry interest, and thus, they will pay the cancellation expenses in the registry for this purpose.
As for the costs of taxation and administration office, the Supreme Court stated that the client will bear the former, and the latter will be shared between the bank and the client. Regarding the taxes, the Supreme Court said the client would pay it, although a decree was later approved to the contrary, making it now the bank that has to pay them.
The recent amendments to Law 5/2019 of 15 March, regulating real estate credit contracts, go even further, with registration and notary fees being borne by the bank. The cost of the administration office should be shared between the bank and the customer, while the cost of taxation should be borne by the customer.
In summary, for all mortgage contracts formalized after 16/06/2019, the effective date of Law 5/2019, expenses are divided as follows:
Expenses paid by the bank:
- Notary;
- Registration;
- Administration office;
- This has been so regulated since the Royal Decree of 17/2018 came into force, on 10 November 2018. If the bank tries to force the customer to pay this, it is possible to claim it from the Bank of Spain.
Expenses paid by the client:
- Taxation;
- Copy of the notarial deed;
- Administration office;
- Commissions (for opening file, early repayment and subrogation).
On the other hand, in addition to expenses directly related to the mortgage, there are other costs related to the purchase and sale of the property that are beyond the scope of this article, but which the buyer should take into account. These include:
- Copy of the mortgage deed;
- Property Transfer Tax (ITP): If it is an existing property, the buyer has to pay ITP, the percentage of which varies by autonomous community. If it is a new-build property, Value Added Tax (VAT) is applied;
- Notary fees, registration and processing of the purchase deed.
All this is without taking into account the significant expense the client faces when he has to pay between 10% and 30% of the value of the property already as a deposit.
If you have any questions or need advice on your situation, please contact Lex Foris International Law.
Rafael Montes Velástegui