This European justice mortgage reference tied to the benchmark for home loan lending is set for another discussion this Thursday, centered on IRPH. The issue has seen repeated attention from courts across the European Union, including a request from a Palma de Mallorca court for guidance to the Court of Justice of the European Union (CJEU). While there is talk of as much as 18 billion euros involved, the figure often mentioned more modestly centers around 3 billion euros. Banks have sought to reassure clients by noting that the CJEU has reviewed the matter on several occasions and that earlier rulings did not lead to widespread dissatisfaction among parties. The current task for the CJEU is to address preliminary questions referred by the Palma de Mallorca court in March 2022 regarding whether lenders marketed IRPH without applying a negative differential to match other indices. The discussion hinges on the Bank of Spain’s circular of 1994, which signals that certain practices may be unfair and abusive when used to calibrate mortgage rates.
2. What is IRPH?
The IRPH was an official index that fell out of use and functioned as a widely cited but less transparent reference in mortgages. It was the second most common floating-rate benchmark after Euribor. The calculation involved averaging the interest rates charged by lenders over a three-year period, including related mortgage expenses. Historically, IRPH tended to be higher than Euribor, which translated into higher costs for many borrowers and relatively steadier charges for lenders. Until November 1, 2013, three forms of IRPH existed; after that date, two forms were discontinued by regulatory actions to protect consumers, leaving only the IRPH for the lending institution aggregate. The Bank of Spain published it as the “Average rate of mortgage loans over 3 years for the acquisition of free housing.” In May, the rate was around 3.967% while Euribor stood at 3.862% for the same month.
3. What is the problem?
IRPH is not illegal as a mortgage reference, but it has generally been higher than Euribor. Debates about the index began around 2013, when Euribor started its decline toward negative territory. The crucial question concerns the procedures banks followed when selling these products, especially regarding transparency. A notable case involved a Bankia mortgage from 2018 for 132,222.66 euros where the IRPH was above the 0.25 percentage point level seen in 2001, resulting in higher costs by thousands of euros. The Barcelona first court took this as a signal to obtain a preliminary ruling so the Supreme European Court could assess whether the product was marketed with sufficient transparency. Last year, the Supreme Court upheld the reference but acknowledged a lack of transparency, implying potential wrongdoing. Earlier, European courts had declared IRPH to lack transparency. Following the Supreme Court’s decision, the Palma court filed another question with the CJUE for a preliminary ruling.
For years, banks argued that IRPH offered more stability because it fluctuated less month to month compared with Euribor. Many borrowers did not fully understand how IRPH was calculated and ended up with loans tied to a rate that typically exceeded Euribor. If the CJUE sides with consumers, it could reopen a wave of litigation for those affected by these mortgages in cases where banks did not comply with the circular’s disclosure requirements when marketing the product. If not, avenues for recourse might narrow. Local courts have generally favored consumers, insisting that contractual transparency requires detailed disclosures such as comparisons with alternative indices, historical performance data, and clear projections. Over time, the Supreme Court and CJUE have scaled back these requirements, narrowing the path to relief for affected borrowers.
4. How much is at stake?
Current figures are limited, and banks stress that the exposure represents a residual share of their mortgage portfolios, often tied to legacy loans inherited from prior savings banks. A 2019 estimate suggested that up to about one million borrowers could be affected, with potential exposure in the vicinity of 18 billion euros for banks. Several institutions have since confirmed varying levels of exposure. Caixabank was among the most exposed, followed by Santander, BBVA, Bankia, Banc Sabadell, Liberbank, and Unicaja, with several banks reporting hundreds of millions to several billions in IRPH-related risk. Some lenders have stated they do not market IRPH-linked mortgages. In addition, various industry bodies have cited figures from three years prior to support their positions.