Getting a mortgage in Spain
The chances of snapping up a dream Spanish holiday home for a mere few thousand are few and far between these days. Of course, there are still very reasonably priced properties out there but, realistically, if you’re after a 4-bed villa in Marbella or party-pad in Barcelona you’re going to need more than some spare change down the back of the sofa or a small inheritance from a long-lost aunty to get what you want!
That dream property can still be a reality though, as mortgages in Spain can be a great way to invest. In fact, even if you have the cash to splash it may be more cost-effective to get a Spanish mortgage rather than using your savings.
The idea of getting a Spanish mortgage may seem a little daunting but there are some great mortgage brokers who specialise in assisting foreign clients obtain a mortgage in Spain, who can guide you through the process, making it as stress-free and easy as possible.
What are the benefits of getting a mortgage when buying property in Spain?
Borrowing in Spain is cheap! Historically low interest rates combined with low property prices means buying a home in many parts of Spain today with a fixed-rate mortgage could turn out to be an excellent investment.
The interest rates available in Spain – some as low as 1.2 per cent – often means getting a mortgage in Spain is more cost-effective than re-mortgaging a property in the UK, for instance, at the moment.
Getting a Spanish mortgage can also allow you to invest elsewhere thus spreading the risk of your investments. What’s more, you can potentially save yourself money on the Spanish wealth tax (patrimonio) payments, if these apply to you!
Low redemption penalties also make Spanish mortgages appealing, if you want the flexibility of being able to pay off the mortgage early. In Spain, currently early redemption penalties are 0.5 per cent of the amount paid off during the first five years and 0.25 per cent thereafter, compared with an average early redemption fee of 5 per cent in the UK for example.
What is the lending criteria for getting a mortgage in Spain?
Spanish banks tend to be much stricter with their affordability assessment than UK lenders. Lenders use the ‘debt burden ration’ (DBR) to assess your affordability, but also review applicants on a case-by-case basis rather than using generic profiles. The DBR calculation is based on the percentage of your existing debt (i.e. car loans, credit cards, other mortgages or rental costs, compulsory maintenance payments etc.) against your income. As a general rule of thumb to secure a Spanish mortgage your existing liabilities must not exceed 30-40 per cent of your income.
So, for example if the applicant(s) income is £3,000 after tax and they have a mortgage of £500 per month in the UK, plus a car loan of £100 per month and the proposed cost of the mortgage in Spain is £400 per month their debt (£1000 per month) to income (£3,000 per month) their debt is within the 30-40 per cent affordability range.
Lenders in Spain will also take your current employment status into consideration and require substantial documentation to prove your position as a buyer.
When reviewing your bank statements, Spanish mortgage lenders will assess all debit instructions and standing orders, so it can be helpful to highlight these transactions on your bank statements to make the process easier.
For those who are self-employed, mortgage lenders in Spain require the last three profit and loss accounts and will be looking for a healthy balance on your accounts!
Most mortgage lenders in Spain will also insist that you have life insurance in place, which covers the full loan amount, as well as building insurance, which is mandatory. However, not all lenders insist upon life insurance.
You will also need to prove to the mortgage lender in Spain that the funds for the property purchase – at least 30 per cent deposit plus up to 15 per cent property purchase fees – are available.
In Spain you can obtain a maximum loan to value (LTV) of 70 per cent as a non-resident with a maximum term of 30 years or up until the age of 75. However, Spanish tax payers can obtain mortgages for up to 80 per cent LTV.
For mortgages on properties in the Canary Islands it is common to only receive 50-60 per cent LTV, with a maximum of 50 per cent for touristic properties.
Generally speaking, Spanish lenders will not offer a mortgage amount of lower than €40,000 so obtaining a mortgage on low-value properties in Spain is not usually an option.
What are the associated fees with a Spanish mortgage?
Spanish mortgage lenders charge 0.5-1.5 per cent of the loan amount, however, some lenders will cap this fee.
If you are using a Spanish mortgage broker, you should account for their fees in your budget. These are typically an upfront application fee of £300-£500 plus 0.5-1 per cent of the loan amount on completion. Some brokers are flexible and will negotiate on the fee and also potentially cap the completion fee.
You will also need to account for valuation fees which are typically approximately €370 but can vary. However, some Spanish lenders will waive this.
What is the process when applying for a mortgage in Spain?
It’s advisable to seek the advice of a mortgage broker before you begin the process of applying for a Spanish mortgage, as they can offer an initial no-obligation assessment to ascertain whether it’s likely you’ll be approved for a Spanish mortgage as well as give you a rough idea of the options and rates available to you.
Following this initial assessment, ordinarily you will receive a full mortgage quote within 24-48 hours. At which point you can decide whether you want to sign up with the broker. If so, you will be asked to sign the terms and conditions and arrange payment of their fee at this stage.
You will then need to complete the relevant application forms and submit all the required documentation, which can be a very time-consuming and painstaking process, especially as criteria may change along the way. If using a mortgage broker, they will help you fill in this paperwork and offer guidance on the supporting documents. Once you have submitted all the necessary documentation and the mortgage is approved, you will receive a formal offer.
When you have received a formal mortgage offer the bank will carry out a valuation of the property. Providing there are no legal issues with regards to the property, and the valuation is not lower than the agreed purchase price you will receive a final offer letter which usually takes a further week to issue after the valuation.
In Spain, there is no official Agreement in Principle (AIP) as such. The offer is made on the basis that the applicant’s financial circumstances do not change and while the offer can be extended this is usually subject to the submission of updated documents. The lender’s criteria is also subject to change on average every three months, which can also effect the initial offer. In Spain, the bank will only be able to progress to the next step when the client has found a property. Until then the client may need to provide updated documents, which while frustrating, is necessary.
Therefore, it is worth bearing in mind the timescales when applying for a mortgage in Spain. For instance, if you have not yet found a property it may be worth postponing the mortgage application to avoid having to the duplication of submitting documents. It is, however, advised to get a thumbs up from the bank or broker prior to shopping around so that you know you can afford the property and that you are eligible to go ahead with a purchase.
If you have found a property, your offer has been accepted and you have instructed a lawyer you will then be in a position to set a date for the completion of the property purchase, which your Spanish lawyer will assist with.
Prior to the completion date you must ensure that the funds for the property purchase are available and transferred to the appropriate account before the completion date. Therefore, you will need to obtain your NIE number (Numero de Indentidad de Extranjero) and set up a bank account in Spain beforehand. Find out how using a currency specialist to transfer these funds can save you thousands!
The Spanish mortgage lender will then draw up all the necessary cheques and arrange payment. Once all the associated fees and taxes have been paid and the mortgage deeds have been signed in front of the Spanish Notary (Notario) you become the official new owner!
It can take six to eight weeks to complete the mortgage process, but there can be unavoidable delays in some cases, especially if you have a complicated profile. Many businesses in Spain also ‘wind down’ during the month of August, so if you submit your application just before or during this month, there can be further delays.
What Documents you will need to provide when applying for a mortgage in Spain?
In order to obtain a mortgage in Spain you’ll need to provide a substantial number of documents. Depending on the lender, this will vary but as a general guide the following documents are usually required:
- Copies of your passport (of all borrowers)
- NIE number
- Proof of income(last three month’s payslips and a letter from your employer)
- If self-employed, your last three year’s audited financials and last three year’s tax returns
- Your last three months bank statements for all accounts held
- Proof of available funds for your contribution towards the property purchase, including funds for fees associated with the mortgage
- Statements of any assets
- Statements for any outstanding loans including three month’s credit card statements
- Rental agreements for any property owned
- Preliminary sales agreement (Contrato privado de compraventa)
It’s crucial that you provide all the most up-to-date documents (no older than a month) at once to avoid delaying the process. Spanish mortgage providers will only process your application once they are satisfied that all the necessary documentation has been received and is accurate, so one out of date bank statement could delay the whole process!
What types of mortgages are available in Spain?
Fixed rate and variable mortgage products tend to be the preferred options for mortgages in Spain. Interest only mortgages are usually only available on construction mortgages in Spain, and even then, only for the first year or two of the term.
Buy-to-let mortgage products are not available in Spain and never have been as Spanish banks will not take into account rental revenue.
Remortgage options, although available are very uncommon in Spain and the associated costs are often high and outweigh the benefits.
If you need assistance obtaining a mortgage in Spain call our team today on 01244 478911 or email us on firstname.lastname@example.org to find out more.
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Article published: September 5, 2018