Spanish Mortgages with compulsory life cover
The issue of banks in Spain insisting on compulsory life cover being included on a Spanish Mortgages continues to cause considerable concern.
This activity was stamped out by the FSA in UK some years ago.
It is not that it may possibly be a product it would sensible for a client to take if they do not have sufficient life cover in place; but the fact the Spanish Banks are restricting the policy to theirs alone and taking no account of the suitability or requirement for the client to have life cover that is concerning us all.
No longer is it possible to just look at rates when assessing a Spanish loan; as unnecessary life cover could increase overall costs even if rate offered appears to be low.
Each Spanish bank also has a different way of applying the life cover. Some take regular premiums which will of course increase as client ages and some take a lump sum out and add it to the mortgage capital borrowed so client pays interest on the amount each month as well as clearing the capital. Again, if a client accesses this type of offering the cost of the life will increase if rates increase.
The Spanish banks are far from transparent about the requirement and many clients taking a loan direct are blissfully unaware until completion that it will be the case.
On most occasions, the requirement is now being embedded in the mortgage deed so it cannot be cancelled at a later date. If it is added to the mortgage loan it becomes a capital amount outstanding and should it not be paid would put client into arrears and facing possible repossession.
Residents of Spain face even worse extra costs as they have everything added as compulsory not just life cover.
Only one bank Lloyds do not insists on life as compulsory preferring to act as banks do in the UK and offering the facility for those that require it without making it a pre-requisite of loan. Barclays who are just about to announce huge profits conversely have completely forgotten their UK roots and are looking to try and find a way of adding payment protection as well compulsory life cover to all non-resident Spanish mortgage applications.
It is unclear how under EEC law this activity would be viewed and the Spanish banks have their difficulties, as currently they cannot make money out of lending alone because of cost of funds. It would however at the very least be helpful if some governance was applied as to what the banks can reasonably do, a requirement to be transparent and visible and actually have a measure that shows what the impact of their life costs and overall impact in comparison to other lenders and products.