The IRPH is the acronym for Index of Reference of Mortgage Loans. It is an indicator of interest rates on mortgage loans and is prepared from the Bank of Spain. This has been operating since 1994 and is officially called Average rate of mortgage loans over three years for the purchase of free housing.
According to the definition given by the Bank of Spain, it is calculated as “the simple mean of the average interest rates weighted figures for loan operations with a mortgage guarantee for a term equal to or greater than three years for the acquisition of free housing initiated or renewed by banks and savings banks “.
In 2013, when the Euribor collapsed due to the monetary policy of rate cuts of Mario Dragui, the European index brushed 0.5%, while Spanish did not drop below 3%. This made the mortgage referenced by the IRPH a cost 150 euros higher than average. The consumer associations denounced as they assure that the conditions linked to these products were not clear.
To know if a mortgage is referenced by this index, you have to look at the mortgage deeds and go to the interest or variable interest rate headings. Another way to find out if the loan is governed by IRPH is to review the mortgage receipts and discover if we pay more than 2% interest. If so, our mortgage and the expenses generated retroactively can be appealed.
Declared abusive
On March 3, the Court of Justice of the EU (CJEU) ruled that IRPH was an index that could have been abusively marketed. For this reason, he urged the Spanish courts to study the conditions and if they came to the conclusion that they are abusive, they could replace them with a legal index applicable in a supplementary manner to protect consumers. The Supreme Court must have passed sentence following the decision of the CJEU but this was postponed on September 30 until October 21 due to the pandemic.
The European court recalled that the IRPH was less advantageous than the Euribor, used in 90% of the mortgage loans signed in Spain. The IRPH accounted for less than 1% of mortgages at the beginning of 2020, in the past it was 10% of the total. The difference between a mortgage loan that has the Euribor as a reference and one that is governed by the Spanish index reaches between 18,000 and 21,000 euros total.
The first judgments in this regard in Spain, issued in the courts of LÃ © rida and Burgos, annul the mortgage index and replace it with the Euribor.
“It is not believed [que] the defendant entity will provide specific information regarding the scope or operation of this type of reference by virtue of which they could assess whether it was interested in the loan with this type of reference or a loan referenced to Euribor “, concluded one of the judgments Precisely that “contractual clauses must always meet the requirement of clear and understandable wording” was also pointed out by the CJEU.
Consequences for banking
In the event that justice rules in favor of consumers, the bank would face costs of between 7,000 and 44,000 million euros, according to a Goldman Sachs report prepared before the CJEU ruling.
Currently the entities that have mortgages governed by the aforementioned index are Santander (through its mortgage subsidiary UCI), Bankia, La Caixa, Unicaja, Abanca The BBVA, according to IUS & LEX Attorneys.
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