The IRPH (Mortgage Loan Reference Index) is an index used in Spain to calculate the interest on mortgage loans for more than three years for purchasing free-market housing. Unlike the Euribor, the IRPH is usually higher (between 1.5% and 3% more) and its decreases are slower, which can make mortgages more expensive.
Calculation of IRPH
The IRPH is calculated as the arithmetic average of interest rates weighted by the outstanding balance of mortgage loans. It is not a pure interest rate, but an Annual Percentage Rate (APR) that includes additional costs.
Types of IRPH
Before 2013, there were three types:
-
IRPH Banks: Average of mortgage rates granted by banks.
-
IRPH Savings Banks (Cajas): Average of mortgage rates from savings banks.
-
IRPH All Entities: Average of all financial institutions.
After a 2013 reform, the IRPH for banks and savings banks disappeared by EU mandate.
Are IRPH clauses abusive?
The Bank of Spain prohibited the use of IRPH in 1994 after the entry into force of Directive 93/13/EEC. However, over a million mortgages included it during the real estate bubble. Courts have examined its potential abusiveness.
-
In a 2017 Supreme Court ruling, it was held that IRPH is not abusive per se, but it can be abusive if the financial institution did not adequately inform the consumer about how it works and alternatives, such as the Euribor. Lack of transparency is the key factor.
The Court of Justice of the European Union (CJEU) established that the IRPH clause is transparent if:
-
It is grammatically and formally understandable.
-
It allows an average consumer to understand how it is calculated and its economic effects.
-
Past evolution of the index was properly disclosed.
If an IRPH clause is declared null, the national judge may:
-
Replace it with a legal index if the contract cannot exist without the clause.
-
Require the reimbursement of all interest charged (effectively reducing the loan to zero interest). However, the CJEU moderated this in 2020, leaving open the option of applying another index, such as the Euribor, to avoid leaving the loan interest-free.
What have the courts said?
The CJEU has ruled that IRPH is potentially abusive if there was a lack of transparency, but it is not automatically null. Affected borrowers have claimed reimbursement of interest, but the debate remains open.
Some opinions argue that IRPH-affected loans should continue without interest, while others suggest replacing the index with the Euribor, as it is more common and transparent.
Key points to remember:
-
IRPH is usually more expensive than the Euribor.
-
It can be considered abusive if there was insufficient transparency.
-
Courts have allowed its nullity in some cases but have left open the possibility of substituting it with another index.
