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Spain’s deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain's Deputy Prime Minister and Labour Minister, has called for a freeze on variable mortgage rates amid news that Spain's biggest banks have enjoyed a bumper year of record profits.

Published: 2 February 2023 15:30 CET
Spain's deputy PM proposes freezing mortgage rates
Spain's Deputy Prime Minister and Minister of Labor and Social Economy Yolanda Diaz delivers a speech during the presentation of the "Sumar" consultation platform, at the Matadero cultural centre in Madrid. Photo: JAVIER SORIANO/AFP

Yolanda Díaz, Spain’s Labour Minister and the ideological force behind sweeping labour market reforms, has called for a freeze on variable rate mortgages following news that some of Spain’s biggest banks reported billions in record profits last year.

On Wednesday, BBVA reported a 2022 profit of €6.4 billion, the largest profit in its history. Driving this profit, the bank’s interest margin grew by a whopping 30.4 percent, commission income by 12.3 percent, and loans by 13.3 percent.

Banco Santander posted an annual net profit of €9.6 billion, up 18 percent from 2021 and higher than forecasted by analysts polled by financial data firm FactSet.

READ ALSO: Banco Santander posts record profit as rates rise

Given these record-breaking profits, especially against the backdrop of a prolonged cost of living and inflationary crisis in Spain, Díaz has said the government must act decisively to “freeze mortgages” and “moderate profits.”

“The crisis cannot be an excuse to earn more,” she said, adding that the rise in the Euribor rate is “very serious”, with the average increase (estimated to be €258 per month) “impossible to bear” for normal Spaniards.

Euribor is the interest rate most often used to work out mortgage payments and calculate both variable and fixed rates.

READ ALSO: What the Euribor rise means for property buyers and owners in Spain

It is anchored to the interest rate set by the European Central Bank (ECB), and, as we are now seeing, quite responsive to global economic events. By the end of January, the rate had risen to almost 3.4 percent, the highest level since December 2008.

“While the rise of the Euribor will increase the average mortgage payment by €250 per month, BBVA’s profits grow by 38 percent to reach €6.4 billion, the largest in its history. The crisis cannot be an excuse to earn more. Freeze mortgages, moderate profits,” Díaz wrote on Twitter on Wednesday January 31st.

Banks respond

Unsurprisingly, Spanish banks are not exactly keen on Díaz’s idea. BBVA President, Carlos Torres, said “I trust what will happen is that the benefits of a market economy continue to be defended”. 

Torres also tried to remind people of the “negative years” that BBVA has endured, with “many billions of negatives”. 

It remains to be seen how persuasive Spaniards or the Spanish government find this comparison, or whether Díaz’s Twitter idea will translate into policy.

Windfall tax

Díaz’s call for a mortgage rate freeze is in line with the Spanish government’s approach to the excess profits of banks and energy companies. In July, the Spanish government introduced a temporary windfall tax on excess profits in order to fund some of the extraordinary measures it was implementing to help the most vulnerable in Spanish society deal with the cost of living crisis.

The government in July introduced a draft bill to slap a temporary 4.8 percent charge on banks’ net interest income and net commissions in 2023 and 2024 to fund measures to ease cost-of-living pressures. Between the new taxes on banks and energy companies, they should generate around €7.0 billion for the state coffers in 2023 and 2024. 

However, in November the ECB published a non-binding legal opinion that suggested Madrid undertake a “thorough analysis of potential negative consequences for the banking sector” of the tax.

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TAXES

How to avoid paying Spain’s ITP tax when buying a second-hand home

When buying a second hand property in Spain, you'll have to pay a property transfer tax, known as ITP. There are, however, some circumstances and (legal) ways in which you can avoid paying it.

Published: 9 March 2023 16:10 CET
Updated: 12 March 2023 06:19 CET
How to avoid paying Spain's ITP tax when buying a second-hand home

When buying a used property in Spain (as opposed to a new one) you have to pay the Impuesto de Transmisiones Patrimoniales (property transfer tax) known as ITP. 

ITP is the acronym used to describe the tax that applies to the transfer of ownership of a second-hand property in Spain. It varies across Spain’s regions, and generally ranges from 4 percent to 10 percent depending where your property is.

READ ALSO: Ten acronyms you need to know to buy a property in Spain

When buying a house in Spain, you will either pay VAT (IVA) or the ITP. Put very simply, if you are buying a new property, you will pay IVA, whereas if you buy a second-hand home, you will pay ITP.

You will not, however, and should not, pay both.

According to Spanish consumer watchdog OCU, the ITP on second-hand property purchases by region are:

Andalusia: 6 percent
Aragón: 8 to 10 percent
Asturias: 8 percent
Balearic Islands: 8 percent
Canary Islands: 5 percent
Cantabria: 8 to 10 percent
Castilla y León: 8 to 10 percent
Castilla-La Mancha: 6 percent
Catalonia: 10 percent
Valencia – 10 percent
Extremadura: 7 percent
Galicia: 7 percent
Madrid: 6 percent
Murcia: 8 percent
Navarra: 5 percent
Basque Country: 4 percent
La Rioja: 7 percent 

How to (legally) avoid paying it

However, Spanish law does allow for certain circumstances in which a buyer can avoid paying this extra tax, or at the very least appeal it. If a mortgage is not required for the purchase, it is possible to sign a private contract between the two parties that bypasses the ITP. In order for it to be legitimate before important third parties, such as the Spanish tax agency (Agencia Tributaria), it must be put in a public deed before a notary.

The time limit for the Agencia Tributaria to determine the ITP and collect the tax is four years from the date of the transfer, which begins as soon as the contract is presented to the notary.

Let’s take an example.

Say you bought a second-hand flat in Galicia and signed a private contract with the seller which was not notarised and not registered in the Land Registry. The time limit for the Spanish tax authorities (four years) to demand payment of the ITP had expired for reasons such as the fact that the buyer had the house in his name in the Cadastre and had been paying the IBI for more than four years, i.e. he was the owner of the property and had paid la Comunidad expenses since purchasing the property.

READ ALSO: ‘La comunidad’: What property owners in Spain need to know about homeowners’ associations

This shows that there was a handover of the property by the seller without a deed.

In this case, the four year period has passed owing to the fact that it began from the time the private contract was registered in a public register (ie, the Cadastre).

What if the seller dies?

Another example could be if the seller dies without having made the private contract of sale public.

Now the seller’s heirs or children, who let’s say died more than five years ago, must appear at the notary’s office, but the four year period for the ITP payment has already passed.

The buyer, however, may wonder whether or not he or she must pay the ITP for the purchase of the apartment, considering that it was bought through a private contract over 10 years ago.

In Spain, for the purposes of the legal statute of limitations, the date of the private contract is presumed to be that of its submission for payment, even if it is an earlier date.

“In this case, the death of one of the sellers is a fact that allows us to attest to the sale, since the deceased seller could not sign the contract once they had died. Therefore, since the death occurred more than five years ago, the ITP can be considered expired. Why? Because the four-year limitation period provided for in article 66 of General Tax Law 58/2003 has elapsed,” Salvador Salcedo, lawyer at Atico Jurídico, told Spanish property site Idealista. 

Tasación Pericial Contradictoria (TPC)

If none of the above conditions apply to you, you are still able to appeal the ITP payment throughout something called a Tasación Pericial Contradictoria, known as a TPC. This can be a relatively successful way to avoid or reduce the payment because assessments that are appealed can be (and often are) annulled.

By appealing, you would be challenging the the valuation of the property done by the regional or local government. If the appeal is upheld, you will not pay any additional taxes to that paid in the past for ITP or inheritance.

With a TCP, however, you can often obtain a reduction of the ITP.

Is it ever worth paying IVA rather than ITP?

In some cases, it could be worth your while to pay IVA rather than ITP on a second-hand property – even if the total amount you’d pay on IVA would be higher in one lump sum.

If there is the option to choose, some more entrepreneurial buyers may want to pay rather IVA, not the ITP, because they could then deduct that cost and pass it onto customers. In this example, it would likely be of interest to someone buying a property in order to rent it out.

Make sure to seek legal advice from an expert before attempting to not pay ITP tax on a Spanish property.

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