If you plan to buy a property in Spain and will need to take on some financing, it pays to start looking at the Spanish mortgages that are likely to be available BEFORE you shop around for properties. It’s important you have some idea of the amount of money you will be able to borrow and the rates that will apply. Prospective buyers should also be aware of Spain’s property transaction costs, which average around 15 percent of the property’s value. Even if property prices rise, this could negate any capital gain for a period of three to five years.
An overview of mortgages in Spain
Just like any other advanced economy, Spain has a developed mortgage market with plenty of lenders to choose from and a variety of mortgage types. The vast majority of mortgages sold in Spain are variable-rate mortgages, although most lenders also offer fixed-rate mortgages, just like here in the UK.
Typically, you can expect to receive a loan-to-value rate of up to 80 percent for residents and 60 to 70 percent for non-residents over a term of 20-25 years, although this will depend on your age, income and a number of other factors. Generally speaking, due to the perceived additional risk, the loan-to-value you can expect on a holiday home is likely to be lower and the repayments more expensive than they would for a permanent home.
What kind of mortgage rates should you expect?
Most Spanish mortgages are variable-rate deals which are linked to the yearly EURIBOR (European Inter-Bank Offered Rate) plus a margin. Thanks to the low EURIBOR rate and the low-interest rates currently in Spain, there are some good deals available. The rates you’ll receive are likely to be anywhere from 2 to 3 percent depending on the particular product. The rates on fixed mortgages currently range from 2.5 percent to 3.5 percent depending on the length of the deal.
How much can you borrow?
If you are an official resident in Spain, the amount you can borrow will typically be higher than non-resident borrowers. Spanish banks will lend residents up to 80 percent of the property’s value, with the value of the property based on the purchase price or the bank assessor’s valuation. So, if the purchase price of your Spanish property is €100,000, but the property has been valued at €125,000, you could potentially borrow up to €100,000.
What are the costs?
If you are using a Spanish mortgage lender, you should allow up to 15 percent of the total mortgage amount for the closing costs. That includes the transfer and stamp taxes, the bank’s arrangement fee, the opening fee, notary fee, registry and bank assessor’s fee. The transfer tax is the big one. This costs 6-10 percent of the purchase price depending on the property’s location. All Spanish residential property is also legally required to be covered by home insurance for the full value of the property. You may also need to pay for a property appraisal, local attorney or Spanish translator.
Applying for a Spanish mortgage
Before applying for a Spanish mortgage you will need a NIE number, which you can read more about here. You will not be able to get a mortgage without one. Whether you go to a Spanish bank or an international lender, you will also need the following:
- Proof of employment or income
- A pre-agreement with the seller
- Proof that property tax has been paid to date
- Details of any current debts and mortgages
- Copies of your existing property deeds
- Records of your current assets
Once you submit your application and the underwriters have processed all the details, you will receive a mortgage offer from the bank. If the offer is less than you were hoping for, you can go to a competitor and ask them to improve the lending amount. In many cases, they will be able to do so.
A word of warning
Most property transactions in Spain are handled by local estate agents and their activity is not regulated by law. Agents’ fees typically range from 5-10 percent of the selling price, which is a disproportionate cost you could really do without.
Here at Costa Conveyancing, we offer an English-speaking, fixed-price conveyancing service that meets strict UK guidelines. That includes translating whenever necessary, providing assistance at the notary’s office and changing utilities and other contracts into your name. For more information, please get in touch with our team.