Spain is a fabulous place to set down roots, or purchase that second, or holiday home, and any individual, or company, that is able to prove the source and amount of their income can apply for a loan from a Spanish bank.
Article by Victoria Wood
The language of money lending can vary hugely from place to place so it is important to look into your financing options. As it happens, Spain has a good relationship with expatriates when it comes to securing a mortgage offering flexibility as well as low costs. The whats, whens, whys and hows of which are explained here in our quick guide to Spanish mortgages.
First of all, the agreement terms of your financing should be the first step in obtaining your house in the sun. These things take time, especially in the south of Spain and so to curate the most effective mortgage for your situation ensure that you allocate sufficient time prior to purchase. And, of course, once you have worked out the terms and amount that is on the table you can then determine which properties are in your budget range.
Despite market constraints, lenders are more or less permitted to set terms, charges and conditions as they see fit, though interest is always charged in accordance with the base rate set by the European central bank. There are countless national and international banks in Spain which will offer a wide variety of mortgages to non-natives so it is well worth researching.
SPANISH MORTGAGE TYPES & TERMS
Most lenders will lean towards the variable rate mortgage; repayments varying according to current interest rates. This obviously favours the client when interest rates are low but you can never predict when they will rise. The uncertainty of which can be a factor in the appeal of such a mortgage.
Most lenders will also be able to offer a fixed rate mortgage. This means that the repayment rates will be set for the duration of the repayment. The rates are generally set higher than the going interest rate, yet this can work in the favour of the client should interest rates soar, their fixed rate will remain the same in any case. This is an appealing system for those who do not like any level of risk and are willing to take a potentially higher rate to avoid any surprises down the line.
There are a few examples of mixed rate mortgages available in Spain whereby the loan will be set at a fixed rate for a pre-determined amount of time, once this period is complete the payments will then turn to a variable rate.
This is not really an option in Spain, you will be hard-pressed to find a lender that will agree to repayments being limited to interest on the total amount.
Personal balance sheet
In order to secure a mortgage the bank, or lender, will first need to analyse your financial situation. This will detail your income, outgoings, dependents, and other financial commitments. This is commonly known as your personal balance sheet. Generally the amount you can be loaned will be reflected by what you are seen to have and be generating regularly and normally will not exceed 35% of your net annual income. On occasion prospects are taken into consideration as a lender may note your potential earnings in extreme circumstances.
A Spanish lender will obviously prefer it if the property you are planning to buy is your primary home or first home as opposed to a second home or holiday dwelling. A second home would be more expendable as a rule and so lending on the person’s primary occupation makes more sense and feels more secure for the lender. In this case you may get better rates.
The most common mortgage length in Spain is currently 20-25 years, however this is age and situation dependent. The longer the terms the lower the repayments, but you will pay more over time due to interest.
Currently, the concept of a 100% mortgage in Spain is not at all common due to the financial crisis and followed by the pandemic providing more uncertainty. You will be far more likely to be offered between 40%-60% although if you are well positioned you might get somewhere between 60%-75%.
Things to consider
If you are not a Spanish national and are applying for a mortgage through a Spanish bank, your documentation proving your financial status may be required to be translated into Spanish. Documents will include some, or all, of the following: identification, bank statements, application form, national insurance details, employment contracts, rental contracts, tax declaration, pay slips, details from credit information bureau, credit obligations, proof of assets and liabilities, company tax returns (if applicable), etc.
There are additional transaction costs which are not covered by the mortgage when purchasing a house in Spain: progressive transfer tax (ITP) for secondary market properties or 10% VAT for purchases on the primary market. In addition, notary fees, registration fees and lawyer’s fees. This can amount to approximately 10-15% of the transaction value.
Often it is the case that if you move your insurance policies to the bank in question they will give you a better mortgage rate. For example, your health insurance, home insurance and life insurance.
Research a few lenders and get a range of offers before settling for one type of mortgage. There is some work to be done to secure a mortgage in Spain but there are plenty of languages spoken, help on offer, and opportunities to provide a gateway to that home in the Spanish sunshine.
BRIGHT is currently developing Vista Lago Residences – 18 luxury, sustainable villas located in Real de La Quinta, a 200-hectare countryside estate just 15 minutes from Marbella. The views across the Mediterranean Sea towards Gibraltar and the African coastline are awe-inspiring. You can find out more about this development here.
If you like what you see and are interested in purchasing, BRIGHT can put you in contact with our partners/collaborators who will be able to help you secure a mortgage.
Contact the Sales Team on (+34) 648 981 111 for more information, or send an email to: firstname.lastname@example.org