Getting a Mortgage in Spain
The Spanish property market is in crsis, and like UK banks, Spanish banks have tightened up their lending criteria considerably in the last year.
Where 80% mortgages were common, most mortgages being offered now are for less than 60% of the value of the property.Some builders are offering more than this, but it may mean paying over the odds for the property.
How much will I be able to borrow with a Spanish mortgage?
The size of mortgage you will be able to get depends on a number of factors
- The valuation of the property
- Your residency status
- Your purpose in buying property in Spain
- Your income
- The nature of the property
What are the different types of mortgage in Spain?
Most Spanish mortgages are capital repayment, though some include an interest only term. There are some Spanish interest only mortgages available – though you would need to get expert advice as to whether this is a suitable option for you. There are a few fixed rate mortgage options on the market but they tend to be costly.
How is the Spanish mortgage interest rate calculated?
You'll hear the term EURIBOR bandied around - this is the European Central Bank base rate and is used to calculate the Spanish mortgage rate. It differs from the Bank of England base rate in that it is an inter-bank rate – i.e., it is calculated using figures from a panel of European banks and, in simple terms, is the interest rate which banks use to lend to each other. The Euribor is used to calculate variable and fixed rate mortgages in Spain – though the vast majority of mortgage deals in Spain are variable.
Purchase and Mortgage Costs
If you are buying a Spanish property with a mortgage, you will need a sum in the region of 12% of the purchase price to cover associated purchase and mortgage costs. The buyer is responsible for Transfer Tax or IVA (VAT) at 7%, Stamp duty (1 – 1.5 %), Property Registration fees, legal fees, Notary charges, valuation fees, and bank arrangement fees (this depends on the mortgage provider). There will be further charges once the property is purchased, depending on the type of property bought – IBI (similar to ‘rates’ in the UK) and sometimes community charges.
If you are resident and employed in Spain, you will pay your mortgage (in Euros) by monthly direct debit. If you are a non-resident and wish to pay your mortgage in sterling you can use an exchange company which will arrange a fixed rate for the repayments so that your payments are not affected by exchange rate fluctuations.
What do I need to obtain a Spanish mortgage?
It depends on whether you are employed or self- employed. If you are employed you need a passport, P60, plus payslips and bank statements for the last 3 months. If you are self-employed you need a passport, your most recent tax return (including profit and loss accounts for return), an up-to-date balance sheet, and your personal and business bank statements for the last 3 months. If you are looking to borrow an 80% + mortgage you will also need bank references, a credit report and an employer’s reference if you are employed, and if self-employed you will need a bank reference, accountant’s reference and a credit report.
It takes, on average, about a month to arrange a mortgage in Spain, though bear in mind that average means just that – be prepared for the process to take as long as 6 weeks (or 2, if you’re lucky!)
Where do I get advice?
It can’t be stressed enough just how vital it is to get a properly registered English speaking Spanish lawyer:
accurate and independent legal advice can mean the difference between a problem-free, smooth
transaction and a property-buying nightmare. Your Spanish property solicitor will deal with all
the legal and tax implications involved in your property purchase. They will make sure that the
seller actually owns the property and is legally able to sell to you; they will check the background
of the property through local authority and title searches. They will liaise with the bank, ensure all
taxes and fees are paid, and handle all the associated paperwork. An experienced English-speaking
Spanish solicitor, with a wealth of local knowledge, is worth his or her weight in gold. If you know
people who have already purchased property in Spain, ask for recommendations. If not, seek out
impartial and unbiased advice. Use an independent company: you are not obliged to use the solicitor
(or mortgage company) your estate agent recommends.