November 27, 2020

The Supreme Court decides today on the legality of the IRPH in mortgages


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The Supreme Court today decides the legality of the mortgages linked to the IRPH. A legal battle that has been going on for years and where the bank is played up to 25,000 million euros, according to Asufin data. Already on March 3, the European justice passed the buck to the Spanish courts, when it determined that the Spanish courts must ensure that this indicator to calculate the mortgage payment was included in the contract in a clear and understandable way, and urged to replace it with another legal index (the Euribor, for example) if they determine that indeed the Credit was abusively marketed.

According to Asufin data, there are about a million families with this type of mortgages and who have paid an average of 165 euros more per month since 2004 compared to the Euribor.

In this sense, Caixabank would be the most exposed bank, with a portfolio referenced to the IRPH of 6,700 million euros. It would be followed by Santander, with 4,300 million, and BBVA, which has recognized that it adds 3,100 million in mortgages linked to this index. The fourth most vulnerable entity would be Bankia, with a portfolio of 1,600 million in loans referenced to the IRPH. Sabadell, for his part, indicated that, at the end of June, the outstanding balance of the mortgage loans indexed to the IRPH was 831 million euros. In this way, the five large banks listed on the Ibex are at stake 16,500 million.

To this must be added the exposition of entities with lower business volume. Kutxabank, for example, reported yesterday that it has mortgages indexed to the IRPH for an amount of 727 million euros, higher than the 209 million euros of Liberbank. Unicaja, for its part, reported during the presentation of the semi-annual results that the amount corresponding to mortgage loans referenced to the IRPH was less than 200 million euros. Bankinter did not market any mortgage referenced to this index.

Since the European justice was pronounced, most of the judgments in the courts have been resolved in favor of the consumer, which end up replacing the IRPH with the Euribor, but there have also been pronouncements in favor of the bank. For example, in June the Balearic Provincial Court ruled two sentences endorsing the IRPH. Therefore, the division between the magistrates is latent.

What is the IRPH

The IRPH was introduced in 1994 through a ministerial order and was calculated as the average rate for mortgage loans over three years granted by banks and savings banks. At that time, the Government argued its creation on the need for a new official reference calculated by the Bank of Spain under strict transparency rules and that took as an example models of rates considered as stable in Europe that protected the client against fluctuations in financial markets.

This index became one of the most used during the years 2007 and 2008, when the Euribor registered an escalation that seemed unstoppable –In July 2008 it reached its historical maximum, standing at 5.393% -. In this scenario, the lower volatility of the IRPH made many clients see it as a more stable and secure option.

Discrepancies in relation to the use of the IRPH as the main index in certain loans were triggered mainly during the years 2013-2016, to the extent that during that period the Euribor began to approach values ​​close to zero, until February 2016 when it entered negative rates for the first time, spurred by the expansionary monetary policy of the European Central Bank.

While the Euribor was in free fall, the IRPH stabilized at values ​​close to 2%. With this, the families that had their mortgage linked to this last index paid higher installments than those that had it linked to the Euribor.

Floor clauses

On the other hand, the same High Court will deal with the matter of transactional agreements between the client and the financial entity in floor clauses, waiving legal actions and lowering interest rates. In this case, it will examine whether these agreements are correct, thus clarifying the ruling of July 9 of the CJEU.

In said judgment, the Luxembourg Court then ruled that the Renegotiated ground clauses of mortgages can be examined by a judge and declared abusive, as well as that it is illegal for banks to force customers to renounce legal action after contract renewal.

Furthermore, the CJEU declared that the European directive does not oppose the renegotiation of a clause that could be declared abusive «provided that the resignation comes from free consent and informed by the consumer ». Second, it opened the door to the fact that the very clause that modifies another potentially abusive one from a previous contract may also be abusive if it has not been individually negotiated.

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