Spanish consumers win supreme court victory on mortgage payments

Ruling could leave banks sharing a €5bn bill over fixed minimum rate homeloans

Some 40 banks were involved in the Spanish class action. Image: Thinkstock

Some 40 banks were involved in the Spanish class action. Image: Thinkstock


Banks including Barclays and Santander face an €5 billion bill after a Spanish court ruled that the millions of fixed minimum rate mortgages are null and void because of the “lack of transparency” in the way they were sold during the property boom.

The ruling in a Madrid commercial court comes in response to a class action suit on behalf of 15,000 mortgages . The mortgages contain what is known as a clausula suelo, which fixes a minimum monthly payment. So, while still a variable rate mortgage, the bank sets a cut off point below which payments are not allowed to fall.

Some 40 banks are involved, including Caixabank, Barclays, Bankia, and Banco Santander. Caixabank and Bankia abolished clausula suelo mortgages last year. The decision was anticipated by the banking sector and many have already made provisions for a payout. They have 20 days in which to appeal against the ruling.

Protect banks

The clauses were introduced to protect banks from negative interest rates.

Most of the estimated 4 million mortgages were sold during the 1997-2007 property boom when buyers were paying top prices for their homes. When the bubble burst they were unable to benefit from falling interest rates.

It is estimated that those affected pay from €179 (Euribor +0.5 per cent) to €213 (Euribor +1 per cent) more on a €150,000 mortgage than they would if they didn’t have a fixed minimum rate mortgage.

As the recession set in and people were unable to meet their mortgage repayments, they were evicted in growing numbers, peaking at an average of 500 a day in 2012.

Under Spanish law homeowners cannot claim bankruptcy over a mortgage as it is regarded as personal debt. So even after the banks foreclose and repossess a property the former owner still have to pay off the mortgage, as well as associated legal charges.


In May 2013, Spain’s supreme court ruled that the mortgages of this type provided by BBVA, Cajamar and NCG were “abusive”. Thursday’s ruling handed down by judge Carmen Gonzalez goes further, “condemning the banks in question to pay back the quantities improperly charged under clauses declared null by the supreme court”.

This means the ruling is only retrospective to May 2013. The European court in Strasbourg is expected to rule on 26th April whether the banks’ liability should extend beyond that date. The European commission has already said it believes the payments should be backdated to the date the mortgage was signed, on the grounds that if a clause is declared null, it is null from the beginning.

The ruling does not outlaw this type of mortgage but says the existing mortgages are null because of a lack of transparency on the part of the banks which failed to adequately inform clients what they were signing up to.

The class action suit was first brought five years ago by the consumers action group ADICAE. Manuel Pardos, president of ADICAE, praised the judge for her “bravery”.

Guardian service