Practical advice if you’re having difficulty paying your Spanish mortgage

There is a full version of this article on the author's law and accountancy firm website:

Spanish mortgage advice - full guide to options (including an offer of free mortgage counselling)

If you're worried about a Spanish mortgage situation read the guide here or on the website, take a deep breath and write an action plan. If you need assistance we are available by phone, in person or by email.

If you, like many others, are struggling with the repayments on a Spanish mortgage, this article is designed to help you review your options and make a clear plan of action.

1. Rental income

If you can rent out your property, make sure you are maximising your rental income whether by improved marketing or dropping your rates to reflect the current state of the market. Consider offering “rent-to-buy” option if appropriate.

2. Reduce non-mortgage outgoings

List your monthly outgoings and see if there are savings to be made particularly on things that you can control to some extent such as phone/internet packages, utility bills, petrol and other car costs, insurance and memberships.

3. Seek relief under the Spanish government bail-out

The government announced a scheme late last year to bail out some mortgage-payers (mainly unemployed ones) by allowing them to defer half their mortgage payments by up to two years. The details of scheme but they can be found online.

4. Reducing your mortgage interest rate

Rates are low at the moment so if you are paying much more than say 3% it is probably because:

- Most mortgages only reset annually and rates were much higher this time last year so you may be paying a high rate temporarily while you wait for a reset.

- Your mortgage, like mine, has a “collar” (minimum) rate which places a lower limit on how low the rate can go – up to 5% in some cases.

According to Spanish press reports some have negotiated reduced rates from their lender but it in our experience the banks are more likely to negotiate on capital repayment (see next section). You could try to change your mortgage to another lender offering better terms but this is expensive and you will need to prove your ability to pay the new mortgage which is unlikely if you are in difficulties already.

5. Reducing capital repayments

Many distressed Spanish and foreign resident mortgage payers have negotiated changes to their capital repayment terms. Being granted either an interest-only period without having to repay capital or extending the term of the mortgage could cut your monthly payments to a manageable level. See last section “Negotiating with the bank” to see how you should approach the bank. If you are offered a deal make sure it really is in your interests:

• Are the terms reasonable or stacked in the bank’s favour?
• How long are your repayments to be reduced and what happens then?
• Can you comfortably pay the new amount?
• How badly do you want to keep the property? If the new terms are still going to be a struggle it may be better to give up the house.

6. Sell up

Only a small number of struggling mortgage payers will be able to sell up as a solution because they need a price which at least covers the mortgage. But if you can sell up and draw a line under the stress and risk of repossession it may be worth it even if you have to take a big loss.

7. Sign the property over to the bank

Banks will sometimes agree to take ownership of a property in return for writing off the mortgage debt under a procedure, established under Spanish law, called “Dación en pago” but usually only if there is equity in the property. If you are considering this option you should act before actually going into mortgage arrears. Secondly hire a lawyer to ensure that you really are walking away with a “clean sheet” and there is no possibility of residual debts coming back to haunt you.

8. Stop paying the mortgage

Some people are tempted to just stop paying the mortgage and leave the house or even return to the UK. There are several reasons why a more positive and active approach is still to be recommended in even these dire circumstances:

- It’s worth at least trying to do a deal with the bank

- if you become “delinquent” you will get a very hard time from the bank or even professional debt collectors

- you will lose all control over what happens and the costs of repossession, including legal fees and penalty interest, will be higher than necessary

- you will not escape liability by returning to the UK where Spanish banks have every right to pursue you for uncleared debts and expenses

9. Request repossession

Requesting repossession may sound akin to a turkey asking to be put in the oven but it could make sense in some circumstances. For instance if a mortgage has become unaffordable and no amount of “restructuring” is going to change this, then it is often best to bring forward repossession because any payments you make will be “good money after bad” and any you miss will simply add to the ultimate debt you are liable for.

10. Negotiating with the bank

Because banks are suffering a tidal wave of defaults across Spain, they are having to change their attitudes and negotiate with mortgage-holders and with persistence you should be able to negotiate a deal.

• Try to talk to the bank before you have already missed a payment or particularly if you are more than three months in arrears.
• Be honest about your circumstances and make sure language is not a barrier by taking along a friend or advisor to translate if necessary.
• Be very clear about what you want to achieve in advance and don’t be put off by the bank’s attitude which may well be bullying or intransigent.
• Do not be pressed into accepting a deal which you still can’t afford and watch out for high fees and unfavorable terms which kick in later in the deal.
• Seek an expert opinion on any offer you have received before you commit to it, if you are in any doubt as to what it entails or whether it’s in your best interests.