The ruling is likely to affect customers who have secured mortgages from many of Spain’s leading banks, including Banco Popular, Banco Sabadell, Caixabank and BBVA. Following the ruling, analysts have estimated that the banks may have to set aside up to €4.5 billion in order to meet their repayments to clients.
The issue concerns the ‘floor’ clause that was written into many Spanish mortgages imposing a minimum interest rate on variable-rate mortgages by setting a limit on how far the mortgage payments could fall in tandem with the benchmark rate, which for most Spanish banks was the Euribor rate.
Since 2008, the Euribor rate has regularly dropped to historic lows, but those mortgage holders tied into a ‘floor clause’ were still having to pay slightly above the benchmark rate, which meant that they unfairly lost out to natural fluctuations in the property market.
The ruling – which cannot be appealed – delivered something of a shock to the banks, with the ECJ stating that there will be no time limit on the reimbursements. This means that the banks could be on the hook for more than €4.5 billion in rebates.
The Spanish Supreme Court made the decision to backdate the rebates only to May 2013 in an effort to protect the Spanish banking sector, which is still recovering from a devastating double-dip recession. However, there was little doubt that the ECJ felt that these banks had failed to provide complete protection for their customers, stating: “The banks did not constitute an adequate and efficientmeans of an end to abusive clauses”. Hence, the ECJ not only ruled the floor clauses illegal, but said that full reimbursements would have to be paid.
One mortgage holder interviewed by Bloomberg has already learned that he is to receive a rebate of €6,000, which is likely to be par-for-the-course for the majority of the 2.5 million customers that have floor clauses in their mortgage.
So while many hard-done-by homeowners will be in line for a very welcome windfall this festive period, Spain’s banks cannot say the same. There was short-lived hope among lenders that the Supreme Court would step in to halt the repayments on the grounds of protecting the industry under “exceptional circumstances”, but the ECJ’s admirable stance of putting customers first should warm the hearts of the everyman.
And what’s more, this is another step along the path towards greater transparency and maturity in the Spanish banking and property sectors, so – while the repayments are long overdue – the steps being taken now should be applauded and welcomed.