To be eligible for application of the measures envisaged in the Code, mortgagors must meet the exclusion threshold by virtue of their economic circumstances.
Once you have requested that the Code of Good Practice be applied, the bank will check that you satisfy the requirements to be considered a mortgagor meeting the exclusion threshold, and will verify the purchase price of the mortgaged property.
If you meet the requirements, the bank will present you with a debt restructuring plan that will help you repay the loan. If this plan is not viable, you may request the next measures in order under the Code, namely a debt reduction or deeds in lieu of foreclosure.
According to the measures to be applied, the exclusion threshold requirements will be different.
For the debt to be restructured:
- The combined income of all the members of the family unit must not be more than three times annual (14-monthly payments) IPREM (the Multipurpose Public Indicator of Income).
- The mortgage payments must amount to more than 50% of the combined net income of the members of the family unit, with net income understood to mean gross income less taxes and social security contributions. Consider the case of the García family below.
- One of the following premises must be met:
- As at the date of the request, the family unit’s debt-to-income ratio, that is, the share of its income that goes to meeting the mortgage payments, must have increased, comparing the moment of submitting the application and the previous 4 years. If this increase is at least 1.5 points, the extent of the debt restructuring will be greater. See the case of the Ramírez and Suárez family below.
- The family circumstances must have reached the point of being considered extremely vulnerable, as specified in the regulation, without this concept being extendable to others not provided for in law.
Family circumstances considered to be extremely vulnerable:
- A large family.
- A single parent family unit with children.
- A family unit including a minor.
- A family unit in which at least one of its members is declared disabled (more than 33% disability), requires long-term care or suffers from an illness that results in accredited permanent incapacity for work.
- A family unit that has, living in the same dwelling, one or more persons who are related to the mortgagor or his/her spouse up to the third degree of consanguinity or affinity and who are disabled, requiring long-term care or suffering from an illness that results in accredited temporary or permanent incapacity for work.
- A family unit in which there is a victim of gender violence or trafficking or sexual exploitation.
- A mortgage borrower over 60 years of age.
Limits in the case of disability
Where any of the members of the family unit have added difficulties, the limits are eased, thus increasing the possibility of the Code being applied to families that, in addition to having payment difficulties, have other extenuating circumstances.
Regarding the first circumstance (paragraph 1 above), the limit of three times IPREM extends to:
- Four times annual (14-monthly payments) IPREM, if one of the members of the family unit is declared disabled (more than 33% disability), requires long-term care or suffers from an illness that results in permanent incapacity for work.
- Five times annual (14-monthly payments) IPREM, if a mortgagor has cerebral palsy, a mental illness, a recognised intellectual disability equal to or more than 33%, a recognised physical or sensorial disability equal to or more than 65%, or if the mortgagor or his/her carer has a serious illness that results in accredited incapacity for work.
The second circumstance (paragraph 2 above) will apply, in the cases indicated in the two preceding paragraphs, if the mortgage payments amount to more than 40% of the family unit’s net income.
The Garcia family has asked that the Code of Good Practice be applied. Only one of the parents works, earning net income of €800 per month. The mortgage payments amount to €465 per month.
The bank verifies that the third circumstance to be considered a family unit meeting the exclusion threshold is met, since the mortgage payments (€465 per month) are more than half the family’s net income (50% of €800 = €400).
The Ramírez and Suárez family will have to:
- Calculate the share of the family income required to meet the mortgage payments. To do so they will have to divide the mortgage payments by the income of the family unit.
- Calculate this percentage and as at four years earlier and compare the two results, not taking into account the intermediate years.
- Present payslips, personal tax returns, etc. to demonstrate the income received.
The requirement will have been met when the mortgage burden on family income at the time of submitting the application (H) has increased compared to that of 4 years ago (A). That is, we apply the formula: A < H.
If this increase has been multiplied by at least 1.5 (A * 1.5 ≤ H), the package of measures to be applied in debt restructuring will be greater.
The Ramírez family has asked that the Code of Good Practice be applied, as their monthly income has fallen considerably and they cannot meet their mortgage payments. According to the documentation they provide on their income:
- 4 years ago, they had an income of 1,500 euros and they paid a fee of 675, so their effort rate was 45%.
- Currently, your income amounts to 1,600 euros, but your fee has increased to 832 euros. The effort rate is 52%.
Given that the effort rate has increased from 45 to 52%, it is understood that this requirement has been fulfilled, which makes it possible to apply the restructuring.
The Suárez family has also requested the application of the Code since their income has decreased considerably and their loan installment has increased as a result of the rate rise.
- 4 years ago, they had an income of 1,600 euros and they paid a fee of 600, so their effort rate was 37.5%.
- Currently, when they apply, their income is 1,200 euros and they pay a fee of 720, so their effort rate is 60%.
We found that the significant change in economic circumstances increased by more than 1.5, since 56.25% (result of multiplying 37.5% by 1.5) is less than 60%. In this case, the broadest package of measures contemplated for debt restructuring under the CBP is applicable.
Additional circumstances in the event of debt reduction or deeds in lieu of foreclosure:
- The family has no other assets or proprietary rights sufficient to pay the debt.
- The mortgaged property is the only home the borrower(s) own(s) and the loan was granted for purchase of that home.
- The loan is not secured by any other collateral or guarantee, or should there be a guarantee, there are no other assets or proprietary rights sufficient to pay the debt.
FREQUENTLY ASKED QUESTIONS
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