Spanish Mortgages

If you are planning to buy a Spanish property and require mortgage finance in Spain, you will want to ensure that you find the best Spanish mortgage for you. Before getting a Spanish mortgage to fund your property purchase, you should get as much information as possible about the Spanish mortgage rates and options available to you to avoid paying thousands of Euros more than you need to over the lifetime of your mortgage.The mortgage market in Spain has numerous lenders offering a variety of Spanish mortgages which can be a bit of a headache to navigate. There can be big differences in the costs and terms of the Spanish mortgages on offer. To complicate matters further, not only do Spanish mortgages vary from bank to bank, they can also even vary within the same bank, from branch to branch!

We have provided some general information about mortgages in Spain below to help you get started. If you require any further information or details of a recommended Spanish Mortgage Specialist who can help you, please contact Total Buying Abroad on 01244 478 911 or at info@totalbuyingabroad.com.

Spanish Mortgages- The Basics:

Although some international banks may offer Spanish Mortgage products, in most cases you will need to arrange a mortgage with a Spanish bank. Mortgages in Spain are sold either directly by the lender themselves or through mortgage brokers. Spanish mortgages are usually offered on a Capital & Interest repayment basis only. Interest only mortgages are not common in Spain.

The maximum loan to value for a Spanish mortgage is usually 70% for non-residents (although 60-65% is more typical). For residents, there may be more favourable rates and loan to value options available, however this does not always apply if the property is a second home.

The maximum term of any mortgage is usually 30 years and to maximum age of 70. This may vary slightly depending on the type of loan.

The minimum loan amount offered by most Spanish banks is generally around €100,000, with no maximum.

Spanish Banks will usually lend against property classed as Urban. Many Spanish banks however may restrict lending on property registered as any other property classification, such as Rustica. If you can obtain an Spanish mortgage against such properties you may find this will be at lower loan to values and at higher rates.

When applying for a loan it is best to check the Nota Simple (the Spanish Land Registry Document) of any potential property early on in the process to check the land classification. The Spanish estate agent should have this, if not you can ask your lawyer in Spain to obtain this for you.

Criteria For Spanish Mortgages:

Affordability is the main criteria for deciding eligibility for a Spanish mortgage. Therefore, in order to qualify for a mortgage in Spain, the lender will need to establish whether you can afford to maintain the mortgage repayments. Your existing outgoing payments are taken into account, including any UK mortgage or rental payments, loans, credit card payments and even payments such as maintenance payments or any court judgements against you. When added together, these liabilities, together with the proposed Spanish mortgage payments should not exceed 30% (sometimes 35%) of your monthly net income (or joint income if more than one person is applying for the Spanish mortgage).

For example, if your net joint income is £3,000 per month, 30% of this equates to £900. If your only liability is your current UK mortgage payment of say £400 per month, this would leave a balance of £500 available for your monthly Spanish mortgage repayment.

Spanish Banks will not usually take into account the proposed property rental income to offset against the Spanish mortgage loan repayment, only your personal income.

Documents Required for Spanish Mortgage Application:

You will need to supply proof of income and liabilities. If you are employed you will usually be asked for:

  • Your last three month’s payslips
  • Your latest P60 and employers reference
  • Your last three month’s personal bank statements

If you are self-employed:

  • Your last three year’s Accounts and Tax Returns
  • Your last three month’s personal bank statements
  • Other documents are likely to be required and will be confirmed when the application forms are sent to you.

You may also have to provide information about the property such as the Nota Simple, a Land Registry document to confirm the classification of the property, title and whether it is habitable.

The Spanish Mortgage Process

You will need to ensure that you have the following before proceeding with a Spanish mortgage application:

Details of a recommended Spanish lawyer

It is important to seek advice from a Solicitor in Spain before agreeing to purchase a property or obtain a Spanish Mortgage. Your Spanish lawyer can help to obtain any necessary property documentation required by the Spanish Mortgage lender and also ensure that the contracts protect you and any deposits paid, should there be any difficulties with the mortgage application.

An NIE Number

You will need to obtain a Spanish N.I.E. number which is a an Identification and tax number in Spain for anyone who is not a Spanish citizen. For further details see: Getting a Spanish NIE Number.

The Spanish Mortgage Process

  1. Contact a Spanish Mortgage Specialist

You will need to review the range of Spanish mortgages available to establish the best Spanish mortgage for you. Whilst there is no reason that you cannot do this yourself if you have the time to dedicate to a thorough search, many people however choose to use a Mortgage Broker who specialises in Spanish mortgages to assist them. Instructing a Spanish Mortgage Advisor can have considerable advantages as well as reducing the time and hassle in finding and reviewing your options.

There are no regulations on offering advice on overseas finance, so only choose a company with a solid, longstanding reputation. If you would like details of a recommended Spanish Mortgage advisor, contact Total Buying Abroad on 01244 478911 Or at info@totalbuyingabroad.com.

  1. Obtain a Spanish Mortgage Quotation and Approval In Principle

Your Spanish Mortgage Advisor will obtain a Spanish mortgage quotation, which shows the Spanish mortgage rates available to you based on the information you have provided to them.

Having an approval in principle will mean that, when you go house hunting for your perfect property in Spain, you will have your finances in place, will know what your maximum budget is, you will know what cash deposits you will require and how much the entire purchase process will cost.

  1. Documentation

Your Spanish mortgage specialist will obtain the lenders application form and confirm the documentation that you will be required to provide in support of your Spanish mortgage application.

  1. Valuation

The Spanish Mortgage Lender will arrange a valuation of the property to ensure they are satisfied that there is sufficient value in the property to cover the loan. This is not a structural valuation and the Bank valuation does not protect the buyer against future problems.

If you would like a structural survey for a property in Spain see our Spanish Surveyors page.

  1. Mortgage offer

If the Spanish mortgage lender is satisfied with the mortgage application, documents and valuation, the mortgage will be offered.

  1. Completion

Completion of a Spanish mortgage takes place in front of a Spanish Notary, together with the completion of the property purchase. All parties to the mortgage, including the buyer, seller, lawyers and a representative of the lender need to be present.

Benefits of Spanish Mortgage Broker

Although it is possible to deal directly with a Spanish Mortgage Lender, please see below the benefits of using a Spanish Mortgage Broker to help you:

  • Saving you time and hassle:

There is a bewildering selection of mortgages in Spain. Obtaining a Spanish mortgage can be complex and time consuming, especially if you don’t speak fluent Spanish. A Spanish Mortgage broker can save you time and hassle by finding the right Spanish Mortgage for you.

  • Saving you money:

Based on the information you give them, a Spanish mortgage advisor will be able to obtain quotes on how much you can borrow, what the monthly fees will be and any additional costs involved.

Spanish mortgage brokers work with many or all of the mortgage lenders in Spain, and will know about the products on offer. Good brokers know how to interpret the small print and identify the hidden costs that you might not be wise to. They know which banks are offering promotions and special deals which could save you money.

  • Helping you to avoid the pitfalls:

In the process of helping you define your Spanish mortgage needs, a Spanish mortgage broker will also evaluate your creditworthiness and obtain an accurate idea of how much debt you can cope with. This can help them select the Spanish mortgage product for you. It is important that you do not take on a mortgage that is bigger than you can manage, taking into account potential interest rate rises and currency fluctuations. A good Spanish mortgage broker can help you avoid difficulties with this.

  • Experience and Market knowledge:

Specialist Spanish mortgage brokers are regularly updated on the best Spanish mortgage deals and will check all the documentation for your application.

Experienced Spanish mortgage brokers have helped many other foreigners to get a Spanish mortgage, which gives them valuable experience that you can benefit from

  • Negotiating Power

Spanish mortgage specialists can use their reputations with Spanish lenders as leverage to the best deal for their clients.

A combination of business volume, convenience for the lender, reduced risk for lenders, mean that many mortgage lenders value the work that Spanish mortgage brokers do in bringing them clients and may be happy to negotiate better terms to win their business.

  • Help to understand the process and documentation

Spanish mortgage advisors can help you to understand the mortgage application process, the documents required and provide you with the information required in a language you understand.

For details of a recommended Spanish Mortgage specialist, contact Total Buying Abroad on 01244 478911 Or at info@totalbuyingabroad.com

Spanish Mortgage Costs

In addition to the usual costs associated with the property buying process in Spain, if you obtain a mortgage for a Spanish property you will also need to budget for the following additional costs:

Spanish Mortgage Broker Fees

Mortgage brokers who specialise in assisting clients find mortgages for Spanish property purchases charge a fee for their services. Fees are usually payable on making the Spanish mortgage application and once a mortgage offer is received. The amount of Fees varies from company to company and may depend on the work involved.

Spanish Lenders Valuation Fee

Valuation fees vary from a few hundred euros to more than a thousand euros depending on the bank, mortgage and property value.

Spanish Lenders Arrangement Fee

Spanish Banks charge a fee known as an opening fee or arrangement fee. This fee is usually taken from the loan amount at completion. Fees for Spanish banks generally range from 1% to 2% of loan amount.

Spanish House Insurance

It is a legal requirement of Spanish mortgages to have house insurance.

Legal Fees

Lawyers fees, Notary fees and Land Registry fees are increased where the Spanish property purchase requires a Spanish mortgage, due to the extra work required.

Top Tip

If your Spanish mortgage repayments will be in euros, the payments will need to be transferred to your Spanish bank account each month together with money for with additional regular expenses, such as utilities, maintenance or management fees. You will need to consider the impact of fluctuations in exchange rates which will affect the cost of the mortgage payments in sterling.

It is therefore recommended to use a foreign currency exchange company to convert your sterling to euros for your Spanish mortgage payments and other bills. This can help you save money on your Spanish mortgage repayments as they offer an exchange rate far superior to that offered by the high street banks and don’t usually charge additional fees like banks do.

If you would like more information about a recommended currency exchange company, contact us on 01244 478911 or at info@totalbuyingabroad.com and we will be happy to put you in touch with a reputable currency specialist who can provide you with further details.

Pensions and Investments in Spain

If you have moved or are planning to move to Spain, you will need to know how to receive your income, such as state pension, private pensions and investment income in Spain. You will also need to ensure that you receive this income in the most efficient way from both a practical and a tax perspective. Any existing investments structures, which generate income for you whilst in your home country, may not continue to receive their tax benefits once you become a resident in Spain and subject to Spanish tax rules.

There may also be tax advantages which you would be eligible for under Spanish law when you receive your income in Spain but are not benefitting from as part as your existing pension or investment.

We have set out some information below to assist you with considering your income arrangements in Spain to help you make sure that these are dealt with in the best way possible for you.

What happens to your UK state pension if you move to Spain?

You can still claim your UK State Pension if you live in Spain. The UK basic state pension is payable in Spain, however UK pension credit is not. If you currently live in Spain but have never worked in Spain, you should claim your UK state pension by contacting the International Pension Centre (IPC) in the UK.

If you are moving to Spain from the UK and already claim your state pension you should inform the IPC of the changes to your circumstances to prevent any problems with your pension payments.

If you live in Spain and have worked in Spain, even for just a short period of time, you have to apply for your UK state pension in Spain at the Instituto Nacional de la Seguridad Social (INSS). The INSS office will then be responsible for processing your claim and collating records of your contributions from all the countries you worked in.

Once you are resident in Spain, you will need to declare income from your UK state pension to the Spanish tax agency. Depending on your personal circumstances, income from a UK state pension may be liable for tax in Spain.

What happens to my private pensions and investments if I move to Spain?

You can of course still receive the income from your private pensions and investments in Spain. These are, however, likely to be structured so that they are tax efficient in the country in which they were set up and are not necessarily tax efficient now that you are a resident of Spain. If you are an expatriate living in Spain, or planning to move there, you should obtain personalised and specialist financial advice about investing in Spain and how to mitigate the amount of Spanish tax you would need to pay. This advice can be invaluable in ensuring your assets and investment strategies are structured as tax efficiently as possible.

You should consult a specialist financial advisor in Spain who can review your options with you and advise you as to the tax implications of these for you in Spain. It may well be that you can gain tax benefits in Spain by restructuring your pension or other investments so that you can, legitimately, pay the least amount of tax possible in Spain, while maintaining your investment objectives.

I have a financial advisor in the UK, do I need a financial advisor in Spain?

Many people have a financial advisor in the UK to look after their investments. Financial advisors will structure their clients investments to ensure that the investments are appropriate for their clients needs and are set up in the most tax efficient way. Financial advisors in the UK are usually (although there are a few exceptions) only qualified to advise clients about suitable structures based on their UK tax liability.

If you move to Spain or become a tax resident of Spain, you will be liable for Spanish taxes. You should therefore have a financial advisor in Spain who can advise you as to the best way to structure your investments so that they work under Spanish tax laws.

Many people do feel a loyalty to their existing UK financial advisors, however, they do not usually have the expertise to ensure that your investments are dealt with in the most efficient way from a Spanish tax perspective.

How will my pension and investment income be taxed in Spain?

If you spend more than 183 days a year in Spain you will become a resident of Spain for Tax purposes and will be liable to pay income tax under the Spanish tax rules, instead of the UK tax rules. If you are a resident in Spain you will be liable to pay Spanish tax on your worldwide income, so all of your income no matter which country it arises.

If you are not resident in Spain but receive income in Spain, you will be liable to pay Spanish tax on the income that arises in Spain only i.e. rent from a Spanish property.

There is a Double Taxation Convention between Spain and the UK to prevent income being taxed in both countries when a resident of one country has income arising in the other country.

Many UK nationals save tax by moving to Spain, in particular those retiring to Spain. You should therefore obtain expert expatriate tax advice in Spain to achieve the full tax benefits as well as up to date tax information, as the rules frequently change.

Everyone resident in Spain is required to formally declare all their assets held outside of Spain. This declaration is in addition to the annual Spanish tax return. Penalties and fines for incorrect, incomplete or late reporting can be incurred and the legislation also means that criminal charges can be brought in the case of non-compliance.

It is therefore very important to take professional advice on your tax matters in Spain to ensure they are both compliant and tax-efficient in Spain.

If you require details of a recommended financial advisor in Spain who can advise you about how to deal with your income, investments, succession plans or taxation matters, contact Total Buying Abroad on 01244 478 911 or at info@totalbuyingabroad.com

Estate planning and Spanish inheritance taxes

Spanish succession tax works differently from UK inheritance tax, and it can also vary from region to region in Spain.

If you are living in Spain you need to understand how it will impact each of your intended beneficiaries, including your spouse. You should also understand how Spanish inheritance tax rules interact with UK inheritance tax, as they both apply to your worldwide assets.

A Spanish financial advisor who specialises in advising clients from the UK who are resident in Spain will be able to advise you about the most effective way to hold your assets and investments so they can be easily transferred to your beneficiaries and in order to mitigate the inheritance taxes they will have to pay.

If you would like details of a recommended advisor to assist you with Spanish succession matters or with regard to your income, investments or taxes, contact Total Buying Abroad on 01244 478 911 or info@totalbuyingabroad.com.