Mortgages: What is IRPH? And what will happen now?

The Advocate General of the Court of Justice of the European Union (CJEU) has just submitted a preliminary report stating that the IRPH is abusive and that it is a “complex and not very transparent to the average consumer” formula. This opens the door for thousands of mortgage signers to legally claim and request the return of interest, although it will be necessary to wait for the magistrates to pronounce themselves definitively in the coming months, because this report is not binding.

But what is IRPH? Why did the claims begin? What have the courts said so far and how can it affect Spanish banking? We review the key issues of this mortgage index.

What is the IRPH?

The Mortgage Loan Reference Index (IRPH) is an official index prepared by the Bank of Spain and is calculated based on the average interest rates on the loans granted by the banks granted by the banks. It is the second most used indicator in mortgages, behind the Euribor.

It began to be applied in 1994 and was widely used between 2005 and 2009, when Euribor reached figures above 5% and IRPH seemed less volatile.

When did the claims begin?

In 2013, when the Euribor began to collapse while the IRPH remained at values ​​close to 2%, some clients of these mortgages began to claim for considering that the index was abusive.

IRPH, in fact, is legal. What is in doubt is the transparency in its commercialization, if it was sufficiently clearly informed about its operation.

What do consumer organizations say?

Consumer associations allege precisely that there has been a lack of information and transparency in the commercialization of mortgages referenced to IRPH.

The Association of Financial Users (Asufin) estimates that there are more than one million mortgages referenced to IRPH, and that these mortgages have paid an average of 165 euros more per month since 2004. The OCU has created a calculator that lets you know how much has been overpaid for having a mortgage referenced by IRPH instead of Euribor.

What does Spanish justice say?

With more than 170 open cases, there have been conflicting sentences. In 2017, the Supreme Court gave the reason to the bank. He considered that IRPH does not imply lack of transparency or any type of abuse, so there was no reason to cancel the loans. The sentence was not unanimous: two magistrates cast a private vote against.

Why is it in European courts?

Despite the Supreme Court ruling, in 2018 a court in Barcelona elevated the matter to the Court of Justice of the European Union (CJEU). It is posed if, despite being supervised by the Bank of Spain, a transparency check on IRPH is necessary, if it must be replaced by another index (such as the Euribor) or if it should cease to apply.

What impact can it have on banking?

Depending on the decision that the CJEU finally makes, the dozens of judicial cases that are awaiting sentencing may be resolved, and it is also anticipated that an avalanche of new lawsuits may occur. The repayment of interest for banks could mean, according to the highest estimates, up to 44,000 million euros.

The most affected entities would be Caixabank, Santander, Kutxabank, Bankia and BBVA, which have commercialized a higher percentage of mortgage loans referenced to IRPH.

What could be claimed?

What and how to claim will depend on the final decision of the CJEU. There will be what to see if IRPH is declared void, what responsibility is required of financial institutions and what is indicated about retroactivity.

One possibility is that the full return of interest is contemplated. Another option is to be forced to return the difference with respect to the Euribor. And it is missing if it would apply from the beginning of the mortgage, with a certain time limit or only after the conclusion of the court is published.

For now, therefore, we must wait. If the CJEU finally fails in favor of customers, the bank must first be directed to eliminate the index as abusive. If the entity dismisses the claim, we must go to court. There are several affected platforms that facilitate the process.