What exactly is mortgage product tying?

Mortgage product tying encompasses the entire set of financial products or services that the bank proposes you take out at the same time as applying for finance to buy a property. Historically, banking institutions linked the granting of a loan to the purchase of insurance, payment cards or pension plans to maximise the profitability of each credit transaction.

With the legal reform introduced in 2019, the regulatory framework changed substantially in order to provide greater transparency to transactions and protect consumers. Since then, a clear distinction must be made between two different contractual arrangements: tied sales and bundled sales.

Tied sales versus bundled sales

To fully understand how mortgage product tying works, it is essential to analyse the difference between these two legal concepts:

Tied sales (Prohibited with exceptions)

Tied sales consist of an obligation imposed by the financial institution to contract a package of its own products as an essential requirement for mortgage approval. Current law explicitly prohibits these practices. The bank cannot refuse you finance on the grounds that you do not wish to take out the bank's specific payment cards, funds or insurance policies.

The only exception provided for under the rules is the requirement to have an insurance policy that guarantees compliance with the loan obligations (such as building damage insurance or life insurance), but the borrower always has the freedom to contract such insurance with whichever insurance provider they prefer.

Bundled sales (Permitted and regulated)

Bundled sales are those where the bank offers the mortgage independently, but offers the possibility of reducing the interest rate (the TIN) through the voluntary purchase of certain commercial products. In this scenario, taking out the products is optional: if you decide not to take up the suggested products, the bank must still grant you the mortgage, although it will apply the non-discounted (higher) interest rate.

Most common products in mortgage tying

Although mortgage product tying is not legally compulsory to obtain finance, banks usually offer interest rate discounts in exchange for the following products:

• Salary or income deposit: This is the most common discounted product. In exchange for paying your salary or self-employed income into the account, the bank reduces a fraction of the interest rate.
• Home insurance: It is a legal requirement to have building insurance covering the mortgaged property against fire and other risks. However, you are not obliged to take out the policy sold directly by the bank.
• Life insurance: Provides cover for the outstanding principal in the event of death or disability of the policyholder. As with home insurance, you can present an equivalent life insurance policy arranged with another insurer.
• Pension plans or investment funds: These usually require a fixed minimum annual contribution to maintain the contracted discount on monthly repayments.
• Use of credit or debit cards: The bank usually requires a set number of transactions per quarter or a certain amount of annual expenditure.

Is it worth accepting mortgage product tying to lower interest rates?

Accepting discounted products does not always mean a real saving for the customer. The reduction in the interest rate must be weighed against the total cost of insurance premiums or the maintenance of additional services over time.

On many occasions, premiums for life or home insurance sold by banks are significantly higher than average prices on the open market. To determine whether mortgage product tying is worthwhile for you, it is advisable to request two key figures in the bank's offer:

1. The FEIN (ESIS / European Standardised Information Sheet), which will reflect the Annual Percentage Rate (TAE) both with the discounted repayment and in the scenario without discounts.
2. The estimated overall annual cost of all linked products required to maintain the maximum discount.

If the total annual cost of the additional products exceeds the savings you obtain on loan repayments, it is more advantageous not to take up the discounts or to seek advice from mortgage brokers to negotiate optimal conditions without unnecessary extra costs.

What happens if you cancel a discounted product after signing?

If you decide to cancel any of the linked services during the life of the loan (for example, moving your salary deposit to another bank or failing to renew an insurance policy), the bank will apply the penalty agreed in the title deed. This consequence consists of losing the interest rate discount at the next periodic review.

The interest rate increase may in no case exceed the discount percentage stated in the conditions of the initial offer. Likewise, legislation prohibits the bank from charging you additional fees or penalties simply for switching your insurance policy to an external company, provided that the new policy meets the minimum conditions required by law.

Considerations for social housing (VPO)

In the case of transactions to purchase social housing (VPO) in the Comunidad de Madrid, mortgage loan management may involve specific conditions or agreements that further limit cross-selling requirements. It is essential to review in detail the regional regulations applicable in the Comunidad de Madrid to avoid incurring additional costs that distort the tax benefits or capped prices regulated for these properties.

Frequently asked questions about tied products in mortgage loans

Can the bank refuse a mortgage if I do not agree to take out its insurance policies?

No. The bank cannot refuse to grant a mortgage loan based solely on the client's refusal to take out the bank's own insurance or services. However, it can decline the application based on strict solvency criteria or apply non-discounted interest rates.

Is it compulsory to take out home insurance with the mortgage provider?

No. You have a legal obligation to insure the property against damage, but you enjoy full freedom to arrange this policy with the insurer of your choice. If you provide a policy from an independent company with equivalent coverage, the financial institution must accept it without charging fees for assessing it.