Ground clause mortgage explained

The controversial ground clause mortgage continues to cause annoyance for homeowners who weren’t aware that it was part of their mortgage deal. Thankfully it’s only a worry for Brits who have bought a home out in Spain, France, Italy, Portugal and Belgium.
    getty - Christopher Furlong

Interest rate

The basic principle behind the ground clause in a mortgage dictates a minimum interest rate. It’s a way for the financial institutes to protect themselves in the event that the Euribor declines. The issue that homeowners have with this clause is twofold. The first problem is that many didn’t know it existed in their mortgage contract. That’s a point that you can easily argue against because you should check your paperwork before signing, but the second point is not so easy to explain away. The issue for mortgage holders is that when the Euribor declines, as it did in 2009, these reductions weren’t reflected in the mortgage rate even though 90% of mortgages in countries like Spain are based on the Euribor.

Drop in interest rate

Although drops in the Euribor interest rate don’t benefit home owners who’s mortgages are tied to the ground clause, this practice by lenders isn’t considered illegal, just unethical. The issue only occurs in exceptional circumstances because the Euribor plus the differential has to drop below the minimum interest rate before the ground clause is applied so perhaps from the lenders point of view this clause is necessary to maintain their income but it’s a sting that homeowners can’t afford.


A study based on mortgages taken out in 2007 over a 30 year period and for more than €150,000 showed that when the ground clause was applied, home owners faced increases ranging from €68 to €256 a month.

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