They are insisting that their clients to take on additional products, such as life insurance, that drive up conveyancing costs by as much as 100%, according to a a new report by María Martínez, professor of civil law at the University of Zaragoza.
It is being described as 'a national scandal' by Spain's Consumer Union which wants the Spanish government to act to stop the practice.
'The law only requires mortgage borrowers to take our fire insurance,; said a spokesman for the organisation.
'Mortgage lenders are imposing other products, such as life insurance, temporary incapacity insurance, unemployment insurance, pension plans, credit cards, and direct debits, as conditions for approving a loan, the report points out.
'Not only are these additional products not obligatory, it is against the law to oblige clients to take out such products,' the report says. It also points out that 'the requirement, in many cases, of personal and other guarantees subjects consumers to excessive demands not always justified by the volume and operational risk borne by the lender.'
Imposing additional products drives up the cost of purchase and imposes unjustifiable demands on borrowers, argues the report's author.
'Banks gets greater guarantees and higher margins from additional products, all of which have to be paid for by consumers. Furthermore, they also get the mortgage opening commission.'
Professor Martinez estimates that these extra products tend to double conveyancing costs for mortgage borrowers from around 10% of the property purchase price to 20%.
The practice doesn't just affect the Spanish. Many British property investors have and continue to take out Spanish mortgages.
