Spain

Abstract

Spain grew without interruption for fourteen years until 2007. The period of economic expansion as from 2000 featured a sharp rise in private indebtedness ofboth families-with an increase in the proportion of real estate loans following the surge in demand for housingand non-financial enterprises, especially in the real estate sector. This went hand in hand with the parallel higher exposure of financial institutions to real estate risks. The increase in demand for housing was due to several factors, including expected future income and the ease in obtaining credit, with favourable interest rates and generous maturity dates. Shortly after, the supply of housing also increased, thanks to the availability of credit to real estate companies and the increase of urban land, amongst other reasons. However, even with a larger supply of real estate, there was a major surge in housing prices. At the end of the period, all the hallmarks of a speculative bubble were present. At the same time, the amount of credit granted to families and non-financial enterprises also grew substantially, especially through credit offered by saving banks. Encouraged by the increased demand and positive housing price trends, the mortgage market boomed. In turn, financial institutions used their client deposits to provide credit and resorted to the issue of financial instruments in capital markets, particularly securitization. In 2008, the economic imbalances accumulated during the expansion-private indebtedness, housing prices, real estate sector exposure, and others-that were common in many countries became present in the economy. One distinctive characteristic of the Spanish crisis was, however, the severe impact of unemployment rates, which reached 21 per cent in 2011 and 26 per cent in 2013. The demand and price of housing dropped and the number of defaults increased, especially in loans granted by saving banks, which had a higher exposure to the real estate sector. In this context, it is hardly surprising that there was a parallel surge in litigation regarding financial contracts entered into with credit institutions. Clients in default or in financial difficulties, some of whom risked losing their houses, challenged certain clauses used in contracts by financial institutions during the economic expansion period. The claim of unfair clauses pursuant to Directive 93/ 13/EEC (Unfair Terms Directive, UTD) was a central issue in such claims. Given the importance of the mortgage market in Spain, litigation notably revolved around clauses included in mortgage loans.