Spain will ease conditions for people who can't pay their mortgages

06:00 El NACHO 0 Comments

Spain will ease conditions for people who can't pay their mortgages as floating interest rates rise and unemployment remains the highest in the European Union, the government said on Thursday.

Interior Minister Alfredo Perez Rubalcaba said the government will decree on Friday a new and higher limit on the amount banks can legally deduct from the wages of a mortgage holder in default.

The government is contemplating other new rules to protect homeowners four years after a property bubble burst leaving many Spaniards stuck in homes worth much less than what they owe the bank.

"Indignados" or "indignant" protests around Spain in recent months have called on the government to address the plight of borrowers who can be evicted by the banks but still owe the entire amount of their mortgage even though the bank now owns their home.

Banking groups have warned that changing mortgage rules could send the wrong message to investors, who are concerned about the high levels of exposure to bad property loans in Spain's financial system, particularly if applied retroactively.

Rubalcaba did not say whether the measure would be retroactive. Under current rules banks can deduct all but 641 euros of monthly wages. The new amount that is protected from deductions will be 961 euros.

"This will help a lot of people who are having a rough time or who may have a rough time," Rubalcaba said in a television broadcast.

Spain's tough mortgage rules are part of what has kept the country's property prices from correcting more sharply four years after the real estate boom came to a dramatic end. There is no incentive in Spain for property owners to walk away from their home.

Frustration over the credit crisis has led to a series of blockades on planned evictions across the country as protesters arrive with lawyers and try to block evictions by banks.

Though the government's planned new rule goes some way to address protesters' concerns, one troubled homeowner said he would wait and see what effect it had before he could celebrate.

"The new measures could be an indicator of success (of the protests), but I don't really trust them," said Javier Payero, a salesman in his 30s who is at risk of being evicted.

On Wednesday Payero and dozens of other protesters in Malaga in southern Spain, successfully blocked the eviction of a mother of three children.