With the UK currently in the process of leaving the EU, it's fair to say that these are uncertain times for expats living in Spain and other parts of Europe. For those of us who may be considering buying a property here and getting a Spanish mortgage, Brexit has in many ways, put a 'spanner in the works'. Coupled with a weakening pound, many will be reluctant to buy a property in Spain at this time and will no doubt choose to wait for the outcome of the Brexit negotiations before committing themselves to any long-term financial decisions.
Spain is still an excellent part of the world in which to own a property and very much remains the favourite destination for Brits both for a holiday and to emigrate. Whatever the outcome of Brexit, the British love affair with this particular part of the continent will continue.
Once you do decide to take the plunge, it's important that you get your Spanish mortgage in place as soon as possible and preferably, before you start your property hunt. If you wait until you find a property, you may well put yourself under uneccessary pressure and end up opting for an expensive or inflexible loan. Considering that most mortgages will run for around 20 years, choosing the wrong mortgage can be very costly.
Differing LTV Values for a Spanish Mortgage
The top LTV (loan-to-value) rate that a non-resident can acquire is currently around 60% and is the case with most Spanish lenders. This signifies that a borrower may need to make up to a 40% deposit on the total cost of the property. Additionally, Spanish banks use an affordability ratio of between 30 and 40 percent. In essence, this means that banks will not allow a mortgage where the monthly payments exceed approximately 35% of one’s monthly income.
What Documentation is Required to Obtain a Spanish Mortgage?
To initiate a mortgage procedure, the following documents will be initially required:
- The last 3 months of pay slips or an equivalent source of verifiable income.
- The last 3-6 months of bank statements recording such income.
- The most recent P60/tax return
- A valid copy of the applicant’s passport
- Bank reference
- Employment contract (Employed)
- Company accounts (Self Employed or Business Owner)
- Copy of personal credit report
What is the Current Variable Interest Rate and What is the Euribor interest Rate?
The good news is that Spanish interest rates are at their lowest for 30 years or so. Current variable interest rates on a Spanish property mortgage are between 2% and 4% (depending on status and loan to value) while the Euribor interest rate for a twelve-month period at the time of writing stands at -0.0149%. Both of these figures are important in calculating the overall long-term cost of mortgage repayments.
What is a Nota Simple?
A Nota Simple is a document provided by the Spanish Property Registry that includes a detailed description about the property. It includes the current owner’s information, whether any debts exist, the property boundaries and how the land is classified (commercial, farmland or developable).
What Different Types of Mortgages are Available in Spain?
As the Spanish property market is not as sophisticated as the UK market, the large proportion of mortgages granted are variable interest rate (simply capital and interest repayment) mortgages. Some lenders also offer fixed rate mortgages including CaixaBank who offer a 20 year fixed rate mortgage
. Interest only and buy-to-let mortgages are not currently available in Spain.
What is a Basic Breakdown of the Costs Involved?
As is the case when buying a property anywhere, there are usually a number of fees and costs that need to be paid. These may include a valuation fee of between 300 and 1,000 Euros. Banks tend to charge a 1% setup fee and the Spanish government will further charge around 1% stamp duty (AJD - Actos Jurídicos Documentados). Mortgage brokers charge 1% (although some may be willing to work for less) and one needs also to consider on an individual basis the legal fees and notary costs involved, as these can vary significantly. On average the total costs will amount to approximately 11% of the purchase price.
Can I Get a Mortgage in Spain and How Does it Compare to a Resident’s Mortgage?
A foreigner applying for a mortgage must first obtain an NIE
, or foreign identification number. This can be obtained by contacting the Spanish consulate in London or by getting Power of Attorney in Spain
. The main difference between a resident’s mortgage and a foreigner’s mortgage is the fact that the foreigner will be liable for Spanish taxes as well as any existing UK taxes. Particularly, there is a tax which Spanish authorities levy on foreign property owners that valuates a property, takes 2% of that figure and then imposes a tax of 25% on the initial 2%. This is for foreigners only. More on Spanish property taxes for residents and non-residents can be seen at http://www.spanishpropertyinsight.com/tax-and-pensions/property-taxes-for-non-residents/
Can I get an International Mortgage with a Bank in the UK?
Many large banks offer the UK resident the advantage of applying for a mortgage for an international property. While large banks may offer the service, it is advisable to utilise Spanish banks due to the favourable exchange rate.
Should I Use a Mortgage Broker in Spain?
A Spanish mortgage broker will be innately familiar with the relevant laws and regulations, but always check to make certain they have the right qualifications. Also, a Spanish lawyer, or abogado, is also advised, as some of the mortgage broker’s practices or policies may seem unfamiliar to a UK resident.
Up to What Age Can Mortgage Repayments be Made?
Repayments can be made up to 70 years of age, although due to the financial crisis, some regions are now extending the age until 75. It is best to check with the mortgage broker to make certain of the age limit.
These are a few of the main questions one should consider when applying for a mortgage in Spain. As with any financial decision, it is best to seek the advice of a qualified professional to address any additional concerns you may have.