ABOUT OUR MORTGAGE PRODUCTS
Spanish bank procedures and mortgage products are different to those in other countries. Due to our long-standing relationships with the lenders, we offer expert guidance on the process of applying for a mortgage and exclusive conditions with rates not offered publicly from Euribor + 1.35%, fixed rates from 2.15%, mortgages without life insurance, and terms up to 25 years or age 75 if earlier.
HOLIDAY HOME MORTGAGE PRODUCTS
Holiday home mortgages are generally for non-resident property buyers who do not live in Spain the maximum borrowing amount is up to 70% of the property purchase price (or valuation if lower). Lenders offer fixed, variable and, in some cases, mixed rates. For variable rate mortgages, the rates are based on the annual Euribor reference rate with a percentage margin added to this, for example, annual Euribor + 3%. We can currently offer mortgages with rates as low as annual Euribor + 1.35% or fixed rates from 2% for premium, non-resident clients (please enquire to see if you would qualify). Typically, for other clients, the rates will be a little higher than this (from Euribor + 1.9% and 2.15% fixed) but still lower than publicised rates or if you go directly to the banks.
PRIMARY RESIDENCE MORTGAGE PRODUCTS
Primary residence mortgages are for those where the property in Spain will be their main residence and they already pay their income tax here, or in exceptional cases are about to start paying taxes here. For this type of mortgage, it is possible to secure mortgages up to 80% of the property purchase price with rates from Euribor + 0.99% or fixed rates from 2.05%.
INVESTMENT MORTGAGE PRODUCTS
Investment mortgages are for those property buyers planning to rent out their property after purchase, or where the buyer already has at least one existing mortgage in Spain. If the banks believe that the property will not be for sole use by the owner or that a commercial activity will be carried out there, they would normally treat it as an investment mortgage. Generally speaking, banks will only offer 50-60% of the property purchase price (or valuation if lower) for these types of mortgages.
We have provided alternative finance solutions for property buyers who may have a sophisticated investment portfolio. We can help put together back-to-back loan arrangements secured against listed investments. This can be where the lender takes over as custodian, or where a guarantee is provided by the existing custodian of the assets.
COMMERCIAL MORTGAGE PRODUCTS
If you are buying a property that banks will class as a commercial premises (offices, shops, hotels, B&Bs etc.), we can offer mortgages to suit your purposes. The mortgages available are generally 50-60% of the purchase price (or valuation if lower) and conditions differ from those for residential properties.
Where a property is being bought by an actively trading company, or if the company will trade after the purchase, the banks will also treat it as a commercial mortgage.
Some banks will allow you to purchase through a newly formed Spanish limited company (Sociedad Limitada or “SL” company). If the company is set up as a shell company for the sole purpose of buying the property, meaning it will not actively trade after the purchase, it can be possible to secure mortgage terms that would apply for a residential mortgage. Due to the additional work involved in assessing companies, banks are more reluctant to approve this type of operation. Generally, they will only look at such cases when the companies or individual(s) behind them have strong profiles.
CONSTRUCTION MORTGAGE PRODUCTS
For this type of mortgage, the best products are where the banks will offer a loan against the plot of land (up to 50% of the cost, or value of lower) and also for the construction works (up to 70% of the cost, or value of the project, if lower).
In all cases, applicants must own the plot of land outright before any bank will lend. It is possible to purchase the land and sign for the mortgage at the same time, but most clients buy the land first. With the best products, the banks will pay up to 50% of the cost of the plot (or value if lower) as the first installment, but usually only once the works have started.
It is necessary to have all the paperwork relating to the construction project ready at the start of the formal mortgage application process. This will include the architect’s plans for the project (stamped by the College of Architects), building license and detailed quotes from the construction companies that will carry out the works. A specialist valuer will assess the project as a whole and the banks will base their lending on the valuer’s report.
We have arranged many construction mortgages over the years and can offer expert guidance on the process. If you are interested in this type of mortgage, we would advise that you contact us as soon as possible.
FREQUENTLY ASKED MORTGAGE QUESTIONS
- Could I be classified as a fiscal resident to borrow up to 80% of the purchase price?
To be classed as a fiscal resident (one who pays Spanish income tax), usually you need to be paying these taxes before you apply. Some banks will class you as a resident with as little as 6 months’ payslips if it is clear that you are in a long-term job with a reputable company. Others need to see at least two annual Spanish tax statements (declaraciones de renta).
- Do buy-to-let mortgages exist?
Not at the moment, I’m afraid. Whilst some banks won’t penalise you for buying with the intention of renting out the property, they don’t take into account any future rental income so the principal of buy-to-let finance is lost.
- Do interest only mortgages exist?
Unfortunately they don’t. Mortgages in Spain are based on repaying the capital with interest from day one meaning that the capital is fully paid off by the end of the term. For construction mortgages, it might be possible, but only for one or two years at the start.
- How can I calculate my ability to pay (debt to income ratio)?
To determine what you can borrow, lenders look at your ability to pay and typically allow between 30 and 40% of your net monthly income after tax to pay for all worldwide debts (including the new Spanish mortgage). If you have loans, mortgages or credit cards, these will be taken into account in the calculation, as well as rental payments, alimony (compulsory maintenance payments to ex-spouses/partners or in respect of any children from these relationships) and private school fees.
- How do the banks work out what I can afford?
The banks calculate around one third of your net monthly income and that has to be enough to cover your existing debts including any rent you might pay plus the new Spanish mortgage. This calculation sums up your ability to pay, also called the debt-to-income ratio.
- How long will the process take from assessment to completion?
The timescales involved vary from bank to bank and at different times of the year. We usually say to allow between 4-6 weeks for the whole process and it can take up to 8 weeks to complete, sometimes longer if the holiday month of August falls in between or if you have a complicated profile.
- Should I appoint a lawyer?
We strongly recommend that you appoint a lawyer. They will ensure that all the necessary checks are carried out on the property. If anything goes wrong, a lawyer’s job is to protect your interests. We recommend that you appoint a fully qualified lawyer who is registered with the College of Lawyers (Colegio de Abogados). If you do not feel you have been sufficiently protected, you can make a complaint to the College of Lawyers and claim compensation.
- What are the costs involved in the mortgage and property purchase process?
Taxes are different from region to region, which significantly affects the overall costs. For example, property tax (stamp duty) is 10% in the Catalonia and Valencia regions whereas in Madrid it is 6%. As a rule of thumb, excluding Madrid, we say to allow for around between 12% and 15% of the property price, depending on the region. For Madrid, we say around 10%.
- What documents do I need to provide?
To provide you with an initial mortgage quote we would need to fully understand your financial profile, so you may not need to provide any documents. To then proceed with the formal application process we would need documents to prove your identity, income, taxes paid in the last few years, assets and debts, which will usually include a credit report from a credit reference agency.
- What happens after completion?
The new property deed (Escritura) is normally available within 3 months. This will be available from the lawyer with your name(s) registered as the legal owner(s).
- What interest rate will I get?
In most cases the interest rate will be variable and based on the annual Euribor, with an additional percentage (a ‘margin’) added to this. For example if the Euribor is 0.2% and the lender offers Euribor + 1.6%, your rate would be 1.8%. During the variable rate period your repayments would normally be reviewed annually and increased or decreased depending on the 12 monthly Euribor rate at the time.
It is now very common for banks to require a fixed rate period of 6 months or 12 months at the start of the term, for example a rate of 4% for 12 months before the mortgage switches to the variable rate. Fixed rates are available from 5 years upwards and range from 2.5% to 3.5%.
This is an identity number for foreigners who register with the authorities in Spain and applicants will receive an official document with their name and number. This number must be presented for various official transactions and it is essential to have an NIE number if you wish to buy a property in Spain. Applying for the number is done via an office of the national police (Policía Nacional) and sanctioned by the Ministerio del Interior (equivalent of the Home Office). Lawyers usually assist with obtaining this number.
- What is the maximum amount I can borrow?
Lending in Spain is based on the lower of the valuation or purchase price of the property. The maximum that non-residents (those who do not pay Spanish income tax) can borrow is 70% of the lower figure. If an applicant can show they have been paying Spanish income tax, the maximum is 80%. These are the maximum amounts – not every applicant will qualify for these (see ‘Could I be classified as a fiscal resident’ above).
- Who decides on the valuation company?
The bank arranging the mortgage will have a panel of companies they use and will usually select one at random. All valuation companies must be approved by the Bank of Spain.
- Why not use local banks and avoid the broker fees?
Working with us you can be confident we will secure lower rates and higher levels of borrowing and provide a much better service than if you go to banks directly yourself. Banks offer us preferential terms to ensure that we continue sending our clients. Another important factor is that the underwriters know that our clients have a negligible rate of default, so they feel more confident approving our cases.
Our involvement eases and speeds up of the process and ensures that the best possible conditions are secured. We do this by working with a network of trusted contacts at each lender, from Branch Managers to Commercial Directors.
- Will I have to take out life cover?
No you don’t. Whilst compulsory life cover is a feature of many banks, there are some that don’t have this requirement nowadays.
- Will the mortgage be with a Spanish bank?
Not necessarily. We work with all Spanish and international banks lending in Spain.