Banks to pay Stamp Duty on mortgage loans (again)

Raymundo LarraĆ­n Nesbitt, November, 9. 2018

Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
9th November 2018

What a week.

The number of switchbacks and U-turns on this matter reminds me of the Stelvio Pass, in the Italian Alps (inset photo). I think I have seen soap operas with less plot twists than this whole ill-fated affair.

On Monday we started off the week with banks having to pay this tax.

On Tuesday the Supreme Court made an impressive (and most scandalous) U-turn in favour of lenders reversing its new two-week doctrine appealing its very own ruling from last 16th of October. The High Court made it clear once and for all (or maybe not) that borrowers were to pay for Stamp Duty.

On Wednesday, amidst the huge social backlash created by the polemic High Court’s reversal, Spain’s President Mr Sánchez announced on public television a new law to make banks pay for this tax (again).

This law has been published today in Spain’s Official Law Gazette and will come into force tomorrow Saturday 10th of November. The introduction to this new law does not hesitate to lay the blame squarely on the Supreme Court for the incredible gaffe of gargantuan proportions that has brought into disrepute our whole legal system and created huge legal uncertainty.

So, is this the end? Does this spell a landslide victory for borrowers? Do we crack open the champagne now?

I would still leave it on ice for the time being.

For starters, as I had already explained in my blog posts, it was almost a given that lenders would pass on the new costs to consumers. It is only a matter of time that lenders will increase the mortgage terms of loans making them more expensive. As I had pointed out in my articles, this may even restrict the credit supply at a time the opposite is sorely needed to prop up an ailing sector and consolidate a full market recovery. Less borrowers will qualify now for a mortgage loan after the hikes which translates into less properties being sold.

The Government says it believes lenders will ‘autoregulate’ themselves (?) and that they trust lenders will not pass on the costs to borrowers (??). To me, it all just sounds like wishful thinking unless something concrete is done about it. It would seem it’s all much ado about nothing as ultimately, one way or another, borrowers will end up picking the bill. But it looks good on polling day, which is around the corner.

Another point of concern is technical; whether such matters, as the creation of an obligation to pay a tax, can be approved using an executive Decree-Law. This leaves the door ajar in the future to appeal this new law on grounds of being unconstitutional as it has not been passed through Congress. I’m sure lender’s legal departments are having a field day analysing this plot hole and how to exploit it to their advantage.

Hopefully all the legal uncertainty (recklessly) introduced by Spain’s Supreme Court over the last three weeks will now dissipate and the path forward should be clear. Or not.

In the aftermath of this whole blunder, Spain’s Supreme Court reputation now lies in tatters. It is without a shadow of doubt the greatest victim of this self-inflicted damage. Despite the gravity of all that has transpired over the last three weeks, no one has resigned in Spain over this matter.

Clearly, Spain is different.

 

"Spain is different!" - Manuel Fraga

Manuel Fraga Iribarne (1922 – 2012). Brilliant Franquist Tourism Minister who employed this slogan to kickstart what would become Spain's most important and lucrative industry by rapport to its GDP contribution: Tourism. Manuel Fraga was the charismatic leader that created Alianza Popular which in time would be succeeded by today’s Partido Popular, Spain’s main centre right-wing party. Likely one of Spain’s most gifted politicians ever, he was sadly held back in his political aspirations for his liaisons to the now defunct ex-regime. Saddled by his political past, he was never elected into office but successfully groomed his successor, Mr José María Aznar, who would go on to become Spain’s first right-wing President in a democratic post-Franco era.

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