The Code of Good Banking Practices is one of the possible solutions for those families who cannot pay their mortgage debt. However, it is important to keep in mind that a series of requirements must be met in order to be eligible for this code. We review what the conditions are, what measures it contemplates and what the modification that the Government has approved consists of to help low-income households to cope with the increase in fees due to the rise in the Euribor.
What is the Code of Good Banking Practices?
The Code of Good Banking Practices is a set of guidelines and standards that are focused on the restructuring of the debt of those people with a mortgage and who are in a situation of economic vulnerability. In other words, it is a code that establishes what can be done in the case of families that find themselves in a situation in which they cannot afford to pay the mortgage.
This code is regulated by the Royal Decree Law 6/2012, of March 9. It specifies who can benefit from said code, as well as the circumstances that must exist to be able to do so and the solutions that banks must offer in each case.
Not all banks adhere to this code. Therefore, only this solution can be chosen In the event that the mortgage that we have contracted is with a bank that is a member to the Code of Good Banking Practices. In the event that the entity does adhere, it is important to remember that the bank in question is obliged to apply the measures that the code contemplates (provided that the client in question meets the necessary conditions to be eligible for said code).
The application of the Code of Good Banking Practices is supervised by different bodies and institutions. Specifically, by the Bank of Spain, the Ministry of Economy, the National Securities Market Commission and the Spanish Mortgage Association. Therefore, it is a route that offers all the legal guarantees.
How is the Code of Good Banking Practices applied?
The application of the Code of Good Practices is applied in three different ways:
The first solution offered by the Code of Good Practice is pre-foreclosure measures. In this case, the debtor must expose his situation to the bank and request that he wants to adhere to the Code of Good Practices. Within a maximum period of one month, the entity must submit a restructuring plan. This restructuring plan consists of an offer from the bank that makes it possible to improve payment conditions and that should make it easier for the client to pay off the debt.
Among the different options that the entity can present in this restructuring plan, the most common are the following:
- Apply a capital grace: in this way, the client will only pay the proportional part of the interest on the mortgage during the time that the lack of capital lasts. When your economic situation improves, the usual installment payment (which includes both the borrowed capital and associated interest) will be resumed.
- Extend the repayment period: This allows the time in which the debt must be repaid to be extended for a longer time and, consequently, the monthly installments are smaller and easier to assume.
If the restructuring plan is not an option to solve the problem, the bank must offer the possibility of request a reduction of the outstanding capital (if the client meets the requirements). The bank must provide a response to the client regarding the possibility of the write-off within a maximum period of one month from when it is proven that the restructuring plan is not viable. In order to request the removal, it is necessary that the mortgage payment (after carrying out the restructuring of the plan) is greater than 50% of the income received by all the members of the family unit.
In the event that the measures prior to foreclosure and complementary measures are not sufficient, substitute measures may be requested. These replacement measures may be requested during the 12 months following the request for the restructuring plan. Basically, substitute measures consist of dation in payment. That is, offer the house to the bank in exchange for paying off the debt in its entirety. To be eligible for these alternative measures, it is essential that the property has not yet been advertised for auctionas well as that the house is not encumbered with other subsequent charges in addition to the mortgage.
In any case, it must be taken into account that the request for substitute measures does not imply the obligation for the bank to accept them. In other words, the entity will assess this option after the client requests it, and the bank may or may not accept it.
What conditions must be met to benefit from the Code of Good Banking Practices?
One of the most important aspects that must be taken into account regarding the Code of Good Practices are the conditions that must be met in order to benefit from it. That is to say, Not everyone can take advantage of this code due to having financial difficulties to meet the payment of the debt.
Regarding Pre-Foreclosure Measuresonly those people who meet one or more of the following conditions may do so:
- When the total income of all the members of the family unit does not exceed three times the IPREM (Public Indicator of Multiple Effects Income). In other words, that the sum of all the income that enters the home does not exceed 1,694.70 euros.
- When the combined income of all the members of the family unit does not exceed four times the IPREM, if the condition also exists that one of the members of the family unit has a situation of disability or dependency. In this case, the sum of all the income that enters the home must not exceed 2,259.60 euros.
- When the mortgage payment exceeds 50% of the net income of all members of the family unit.
- When, in the previous 4 years, there has been a significant change in economic circumstances. These types of alterations can be the following:
- If the payment of the mortgage installments has been multiplied by 1.5.
- If you are a large family.
- If you are a single parent family with at least two dependent minors.
- If you are a two-parent family with at least one dependent minor.
- If one of the family members has a disability of more than 33%.
- If one of the family members has a permanent work disability.
- If one of the members of the family unit has a disability, dependency or serious illness.
- If one of the family members is a victim of gender violence.
- If the debtor is over 60 years of age.
On the other hand, the conditions that must be met in order to benefit from the complementary and/or substitute measures are the following:
- That the members of the family unit do not have assets or patrimonial rights that allow them to pay the debt.
- That the mortgage is applied to the first home of the owner or owners.
- That the mortgage does not have more real or personal guarantees, or that the owner cannot afford them to pay the debt.
- In the case of co-debtors who are not part of the family unit, they must also meet the aforementioned requirements so that the request to take advantage of the complementary and substitute measures can be carried out.
When can a dation in payment be made?
To make the dation in payment under the Code of Good Banking Practices, it is necessary have previously requested the measures prior to foreclosure and complementary measures. If these measures have not been enough to be able to pay the debt, the so-called substitute measures may be requested, which are those that contemplate dation in lieu of payment as a way of settling the debt with the bank.
Aid to mortgage debtors due to the escalation of the Euribor
The sharp rise in the variable mortgage payments led the Government and banks to close a agreement to ease the financial burden of families with fewer resources. After weeks of negotiations between the Executive, the banking employers (AEB, CECA and UNACC) and the Bank of Spain, the Council of Ministers approved the measures on November 22, through a Royal Decree-law. And the Plenary of the Congress of Deputies validated it on December 15, with 289 votes in favor, none against and 60 abstentions.
Specifically, this rule improves the treatment of vulnerable families, opens a new framework of temporary action for families at risk of vulnerability due to the rise in interest rates and adopts improvements to facilitate early repayment of loans and the conversion of mortgages to interest rates. permanent. Specifically, commissions are eliminated throughout 2023. We review the main measures:
Aid for vulnerable mortgagees
Households are considered as such with income of less than 25,200 euros per year; that is, with income of up to three times the IPREM. And the second characteristic is that they dedicate more than 50% of their monthly income to the mortgage payment. The Government estimates that there are some 300,000 households that meet these criteria.
and there is two cases with different measurements.
- If their mortgage effort has increased by more than 50%, households will be able to restructure the mortgage loan with a reduction in the interest rate during the 5-year grace period (up to Euribor -0.10%, from Euribor +0, 25 current). Likewise, the term to request the dation in payment of the house will be extended to two years and the possibility of a second restructuring is contemplated, if necessary. A new rental application period is also established in the event of execution of the habitual residence.
- If your mortgage effort has increased by less than 50%, you will be eligible for a grace period of 2 years, a lower interest rate during the grace period and an extension of the term of up to 7 years.
Help for mortgagees at risk of vulnerability
On the other hand, the regulatory package opens the Good Governance Code so that middle-class debtors at risk of vulnerability also benefit from the aid measures.
Specifically, the households with an income of less than 29,400 euros per year (three and a half times the IPREM) and mortgages subscribed until December 31, 2022 that have a mortgage charge greater than 30% of their income and that has increased by at least 20%.
Financial institutions must offer all these cases the possibility of Freezing of the installment for 12 months, a lower interest rate on the principal also deferred for 12 months and an extension of the loan term of up to 7 years.
The First Vice President and Minister of Economic Affairs and Digital Transformation, Nadia Calviño, has indicated that The bank has received 9,000 applications for adherence to the Code of Good Practices for mortgage debtors at risk of vulnerability before the rise in rates since January. This figure means multiplying by 15 the number of applications to the monthly average prior to the update of the Code of Good Practices, approved at the end of November.
As the vice-president has specified, in the month of May there will be more data in this regard, so the next meeting to evaluate the evolution of the protocols and codes will be held in the month of June.
In addition, Calviño has defended that these are measures that “anticipate” possible problems and that it is “balanced” by providing relief to families that may be at risk from rising rates, while maintaining financial stability. .