PSOE and PP in deadlock over repossession protection law

And a maximum home value may also be applied for owners to qualify for protection, which will be limited to main residences only.

Banks could also be forced to negotiate and be forbidden from applying higher interest rates as a penalty until a mutually-convenient solution is found.

The PP government's proposed earnings cap represents 2.5 times the minimum wage for a full-time job.

This applies to the entire household rather than per person, but the socialists want to see it increased to between 22,800 and 36,480 euros.

They say the average wage in Spain works out at 22,800 per year, and this should be used as the cap for a single person or a couple.

The PSOE adds that a three-person household's income should have a ceiling of 27,360 euros per year for them to be eligible to avoid repossession, or 31,920 euros for four people living in the same house.

Finally, households of five people or more should not be earning more than a total of 36,480 euros a year if they are to be protected from eviction in the event of non-payment of their mortgage.

The government intends to only apply the protection against repossession and eviction to certain members of society, such as the elderly, the disabled and families with children.

But the PSOE says it should be applied to everyone in respect of their main residence.

The two parties have not yet managed to agree on the maximum home value for the legal protection to apply to the owners.

Homes valued at 200,000 euros or less will be eligible, but owners of more expensive ones will not be able to escape eviction if they fall behind on their mortgage payments and the lender chooses to repossess the property.

The PSOE wants to see this increased to 350,000 euros, taking into account properties in city centre areas and on the coast where valuations tend to be considerably higher.

According to government officials, negotiation procedures between a defaulting homeowner and the mortgage lender will be obligatory and the bank will not be permitted to refuse to do so.

Whilst the negotiation procedures are under way, the bank will not be allowed to apply increased interest rates as a penalty – in some cases, these can rise to as much as 20 per cent.

At present, the banking code of good practice, where followed, allows the defaulting homeowner to remain living in the property for up to two years after the lender decides to repossess it, but the PSOE says this period of time can be reduced if the margins are widened with the protection law by increasing the income cap, applying it to all property owners rather than families with young children, the disabled and the elderly, and upping the maximum property value.

Both parties have agreed that protection against eviction should apply to first homes only, not to second or holiday homes, since the aim of the new law is to prevent people from being forced out onto the street if they cannot pay their mortgage.

A number of empty properties will also be set aside as 'social' housing to provide a roof over people's heads at a very low rent if they are evicted, or choose to cut their losses and hand back the keys to their houses.

Another term within the law reform may be allowing homeowners in serious debt to wipe out their entire mortgage loan by handing over their property to the lender.

The exact figures for the number of people who have lost their homes through repossession are not known, since the total figure of mortgage-related evictions – 400,000 properties – also includes second and even third homes, business premises, and plots of land.