We have just received the following update from our mortgage partners on the availability of mortgages in Spain. The mortgage market is changing rapidly and with quantative easing from the European Central Bank we are expecting to see further changes during the year. If you are looking to buy a property in Spain and want information, without obligation, as to the mortgage you might be able to get just give us a call and we will be happy to help.
70% mortgage for non-residents
We can offer mortgages for non-residents buying holiday homes up to 70% of purchase price (or valuation if lower). For fiscal residents (those paying Spanish taxes), the maximum mortgage is up to 80%.
Competitive rates
All lenders base their mortgage interest rates on the annual Euribor reference rate with a percentage margin added to this, for example, annual Euribor + 3%. We can actually offer mortgages with rates as low as annual Euribor + 1,5% for premium, non-resident clients (please enquire to see if you would qualify), but typically, for other clients the rates will be a little higher than this but lower than the publicized rates or if you go direct to the banks.
Mortgage Direct has some control over rates that can be offered due to the relationship it has with several banks. No other brokers have this advantage.
Competitive conditions
- Terms up to 30 years or age 75 if earlier
- With or without attaching life assurance
- Low redemption penalties
Mortgages for those in retirement
If you are over age 60 and in receipt of a pension, you can still have a mortgage in your own name, although the same criteria relating to the maximum level of debt-to-income will apply. It is also possible to use a guarantor such as a family member to secure your borrowing, which can also have potential inheritance tax benefits.
Interest-only
Interest-only is not currently available, apart from during the first couple of years with some construction mortgages. To keep the monthly repayments down, in the absence of interest-only mortgages, we recommend opting for the longest possible term. This actually gives more flexibility over the amount you repay every month.
Redemption Penalties
It is possible to make overpayments as and when you can or pay off the mortgage in full. The penalties are 0,5% of the amount paid off (partial or full redemption) during the first 5 years and 0.25% thereafter. As an example, for every €10.000 paid off early, the maximum redemption penalty in Spain during the first 5 years is €50. After the first 5 years this reduces to €25.
Commercial mortgages
If you are buying a property that the banks will class as commercial premises (offices, shops, hotels, B&Bs etc.), we can offer mortgages to suit your purposes. The mortgages available are generally 50% of the purchase price (or valuation if lower) and other conditions can vary from those available for properties that will be for personal use only.
Construction mortgages
We can offer mortgages to those wishing to build their own homes. In all cases, applicants must own the plot of land outright before any bank will lend for the construction works. With the best products, the banks will pay up to 50% of the cost of the plot as the first instalment, but generally only once the works have started. It is necessary to have all paperwork ready at the start of the application process, which includes architect’s plans, building licenses and quotes from construction companies who will carry out the works. A specialist valuer will assess the value of the project as a whole and the banks will base their lending on the valuer’s assessment. Lending of between 60-70% of the cost of the entire project (including the price of the plot) is often possible.
Spanish limited companies
Some banks will allow you to purchase through a Spanish limited company (Sociedad Limitada or SL company in the abbreviated form). If the company is set up as a shell company purely for the purpose of buying the property, the bank will assess the company or individual behind the shell company in the normal way. 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 clients or companies have strong profiles. There are tax advantages to buying through limited companies, but clients also need to be aware that there are administrative implications, such as the need to file quarterly tax returns and pay corporate taxes.
Equity-release
Currently, it is only possible to release equity from an existing property if that property is free of mortgage debt. The banks will allow up to 70% of the current value, but only for the purpose of buying a new property, renovating the property itself or where the property forms part of a divorce settlement.
Re-mortgaging
In our experience, this is very uncommon in Spain. In the past there were some re-mortgage products available but they were withdrawn. The costs were high and often outweighed the benefits. We advise clients to always speak to their existing lenders about improving the terms of their mortgages. We have come to the conclusion that the only way to change lender is to cancel the existing mortgage and set up a new mortgage with a new lender and this has cost implications, not only with penalties for redeeming the existing mortgage, but set-up costs for the new mortgage.
