Mortgages in Spain
We advise that you get your mortgage approved in principle before looking for a property to buy.
Mortgages in Spain tend to have major differences to the UK and some other countries due to a number of different factors but the major factor is that Spain has a Notary system and everything regarding Mortgages and property or even personal loans must be signed for at the Notary.
The other major difference is the interest rates paid and the costs involved with mortgages in Spain. Historically mortgage rates have always been less in mainland Europe and those countries in the Eurozone but Spanish mortgages do have larger entry-level costs which can be somewhere between 3.5%-4% of the amount borrowed. In Spain, banks have two types of people they lend to non-residents i.e. people who don’t reside full time and don’t pay their taxes in Spain and Residents who obviously do.
The process of buying a property in Spain is covered in our The Buying Process but obviously, a Spanish Mortgage can be an integral part of buying a property in Spain and understanding how the system works can only be to your advantage.
Costs associated with a Spanish mortgage
Basically you have 5 different costs with the biggest being Spanish mortgage deed duty which is 1.8% of the loan, Bank fees which typically are around 1% to 1.5% of the loan, Notary costs which are a maximum of 0.5% of the loan value, Valuation fee normally 0.10% of the value of the property and any fee you agree to pay a mortgage broker.
All Spanish banks charge an arrangement fee for dealing with your mortgage in Spain. Spanish bank opening fees are payable at completion.
All other costs in relation to the Spanish mortgage deed including mortgage tax, registry costs and some of the purchase deed costs are deducted from your gross mortgage advance. It is not possible to add your costs to the Spanish mortgage unless your valuation level allows you to.
It is important to check you have accurately assessed and accounted for all expenses to ensure you are not left short of funds for completion day. We would suggest you allow at least 15% of the purchase price to cover your purchase and finance costs in Spain in full and that you make sure you are made fully aware of the provision of costs for completion by your lawyer.
Loan to value
Standard loan to values are up to 70% for non-resident and up to 80% for residents. Spanish Mortgages are always linked to the valuation of the property in Spain, not the purchase price. Most Spanish mortgages whilst linked to a percentage of valuation cannot exceed the price declared on the Escritura (title deeds).
Mortgage products in Spain
Spanish mortgages are predominately linked to a variable rate and on a repayment basis. Spanish variable rate products are generally linked to the yearly euribor (European interbank offered rate) and your interest rate will be reviewed yearly. Your interest rate for the first 12 months is determined by the euribor at the month of completion plus the fixed margin above that which your selected Spanish bank is charging. Some offshore banks can provide mortgages in sterling secured against your Spanish property purchase, linked to the Bank of England base rate. There is growing access through banks in Spain to Interest only terms and fixed rates. Fixed rates tend to be slightly higher than the prevailing variable rate
Remortgages in Spain
Releasing equity and re-mortgaging in Spain is only available through certain lenders. Not all banks will provide this facility. Because of the legal process of securing a mortgage in Spain, it is more difficult and costly to make any changes to your Spanish mortgage after completion of your property purchase. Raising funds against an unencumbered Spanish property, releasing further funds or changing the terms is controlled by the Bank of Spain and further tax; bank and notary costs will apply. In Spain, under the current legislation, it is advisable to raise the maximum funding you require for your current and future needs. Lender, product and rates need to be carefully selected to ensure they are the most suitable for your needs. Lender and product hopping, which is now standard practice in the UK is not advisable in Spain without careful planning and advice. Lifetime mortgages for retirees are also available but are not as sophisticated as they are in the UK and other Countries.
Spanish mortgage terms range from 5 to 40 years, are dependent on age and Spanish finance provider selected. Most Spanish banks will expect the mortgage to be repaid by age 70 but it is possible to obtain a mortgage in Spain up to age 80.
Spanish banks underwriting criteria
Most mortgages in Spain are only granted on a full status basis... Most Spanish banks will assess your income net of tax and will want to see that the combined existing UK and new Spanish monthly liabilities do not exceed 1/3rd of your proven monthly net income. It is possible with some banks to extend this ratio to 45% of net income and each bank in Spain will underwrite in a slightly different manner. Rental incomes in Spain may be taken into account on a case by case basis
Using a mortgage broker
Unless you already have a relationship with a Spanish bank we would strongly recommend using a top quality Spanish mortgage broker. The pluses are that they know the market and know which banks are offering best rates and more importantly which bank and which mortgage product would suit your needs best.
We recommend that you use Fluent Finance abroad as your first point of contact: https://www.fluentfinanceabroad.com
We have found this independent company to be very helpful, knowledgeable and efficient in securing mortgages.