Between 2004 to 2012, the banking entities that granted mortgage loans to consumers, introduced a clause in the mortgage contracts/deed that put in place a mechanism for calculating what index rate would apply to the variable interest rate. As such, reductions in the actual index that should have been used were not applied, which meant the consumer was unable to benefit from a reduction in the cost of their mortgage payments.

This clause “emerged” in a surprising way mid-year in 2009, when the benchmark indices used in mortgage loans were reduced by the banking authorities in the midst of the global economic crisis, but the consumer did not see the reduction in their mortgage payments reflected in these indices (EURIBOR and IRPH) due to the existence of this mechanism, commonly known as the Floor Clause (Collared mortgage).

The Spanish Supreme Court pronounced in a judgment on May 9th 2013, that this clause was abusive for not having been duly informed to the consumer, and declared the clause to be null and removed it from the contract by applying the Consumers and Users Law, which was also in line with the provisions of the European Directives on consumer protection (Directive 93/13). Later on, the European Court of Justice, in its pronounced a judgment dated 12/21/2016, declaring that the consequence of this nullity entitled a FULL REFUND TO THE CONSUMER of all the amounts that they would have overpaid by the introduction of this clause or mechanism.

As of 2009, the official indices used to calculate the applicable interest rate on variable mortgage loans were drastically reduced, which meant significant savings in monthly instalments. To date they are still historically low (the Euribor is currently around - 0.10%). However, if a loan had this hidden floor clause, which generally ranged with a collared rate of between 3% and 5%, you would not have benefited from this drop in the interest rate, the instalments that you were paying would remain fixed at the collared rate despite this downward scenario of interest rates.