HEALTHPLAN MAGAZINE

Many individuals harbour aspirations of owning property in Spain, but the financial burden often proves to be a significant obstacle, preventing them from taking the first step onto the property ladder.

Nevertheless, there is now renewed hope for millions of young people and families, courtesy of a recent announcement by the Spanish government regarding the introduction of the groundbreaking ICO mortgage guarantee scheme.

Can I get a 100% mortgage in Spain?

Prior to the recent announcement, securing a 100% mortgage in Spain was a rarity, as the stringent criteria imposed by banks made it extremely difficult for most individuals to qualify. The demand for a 20% deposit payment alone was often insurmountable for many prospective buyers.

However, with the advent of the new ICO scheme, the landscape is set to change dramatically, transforming the dream of property ownership into a tangible reality for countless young individuals.

The scheme is expected to bring about significant benefits for over 16 million people in Spain. To help you grasp the details, here's a comprehensive overview of what you need to know about this initiative.

What is the ICO mortgage guarantee scheme?

Spanish Prime Minister Pedro Sánchez made a significant announcement on Sunday, May 7th, unveiling a new form of assistance facilitated by Spain's Official Credit Institute (ICO).

This innovative aid will guarantee 20 percent of the mortgage for eligible young individuals and families with children who are seeking to purchase their first home.

The scheme is open to applicants below the age of 35, with an annual income of less than €37,800 gross, and is also available to families responsible for children, as long as they haven't previously owned a property. Experts estimate that approximately 16.6 million people in Spain will benefit from this program, as reported by leading property website FotoCasa.

Naturally, the news has generated both excitement and numerous inquiries, as individuals eagerly seek further clarification on the details and implications of the initiative.

What are the main requirements to receive the aid and get a 100% mortgage?

Here are the key requirements for qualifying for this assistance:

• Age: Applicants must be under 35 years old at the time of purchasing their first home, or they can be a family with dependent minors, with no age limit for the latter.
• Income: The annual income should be below €37,800 per person. If there are two buyers applying together, the combined income limit increases to €75,600. Families with dependent children, can have a maximum income of around €83,000.
• Residency: Applicants must be residents of Spain and possess a valid DNI (Documento Nacional de Identidad) or NIE (Número de Identificación de Extranjero).
• Financial Profile: The income and financial profile of the applicants must meet the criteria necessary to apply for a mortgage.
• Property Price: The desired property should not exceed the maximum price specified for eligibility under this aid. This will be determined by each Autonomous Community.
• First Home: The property being purchased must be the applicant's first home and intended for habitual residence.

When can I apply?

The exact opening date for applications is currently uncertain as this policy is still in its early stages. The bill received approval from the Spanish Cabinet on Tuesday, May 9th, and the government is anticipated to announce specific details once the agreement with the ICO is finalised.

However, what has been confirmed is that individuals can request these ICO mortgage aid until December 31st, 2025.

Which banks will support the scheme?

The guarantee (Aval in Spanish) can be obtained by applying through any bank that typically collaborates with the ICO. Considering the extensive list of banks partnering with the ICO for its business and entrepreneur financing programs, including major institutions like Sabadell, BBVA, Santander, and Caixa, as well as numerous local banks, it is highly probable that applicants will be able to apply through their own bank.

There are currently around 30 banks that offer ICO loans and guarantees.

What will be the cost of the ICO guarantee for purchasing a house?

The ICO guarantee itself will not incur any additional cost, meaning there will be no direct fee payable to the Government or the ICO for obtaining the guarantee. However, it's important to note that interest will be charged on the mortgage loan provided by the bank, including the 20% portion guaranteed by the Government. This interest payment will be applicable to the borrowed funds, including the portion covered by the ICO guarantee.

What types of properties can be purchased with the ICO scheme?

We will need to await the approval of the measure to obtain detailed information regarding the specific types of homes and their maximum prices under the scheme.

However, based on similar assistance provided by other Autonomous Communities, the scheme generally allows for the purchase of various types of housing, including both new and second-hand properties, regardless of whether they are classified as official protection or free housing.

It is important to note that each Autonomous Community sets its own maximum price limit for homes eligible under this guarantee.

What is the maximum amount that the ICO can guarantee?

The Official Credit Institute has specified that the guaranteed mortgage cannot exceed 100% of the lower value between the appraisal and the purchase price of the home. Essentially, it guarantees 20% of the lower value, whether it's the purchase price or the appraised value.

If the purchase price is the lower value: In this scenario, the ICO will guarantee 20% of the sale cost, enabling us to secure a mortgage that covers 100% of the purchase.

If the appraisal price is the lower value: In this case, the ICO will guarantee 20% of the appraised value. As the purchase price exceeds the appraisal value, it is essential to have some savings for the down payment, as the guarantee does not cover the entire price of the house.

Additionally, the eligibility will depend on the maximum price specified by each Autonomous Community, and the property being purchased must not exceed that price.

Which documents will I need to submit when applying?

• Proof of DNI or NIE indicating that you are under 35 years old.
• Documentation demonstrating dependent children (if applying as a family).
• Cadastre certificate as evidence that you do not currently own any property.
• Legal declaration affirming the intended use of the purchased property as your primary residence.

Furthermore, your bank will also ask you to provide the following:-

• Your last three payslips
• An employment contract
• A deposit agreement or contract (known as a contrato de arras in Spanish)
• Your personal income tax return from the previous financial year

Do I have to pay back the guarantee?

Yes, you do. The 20 percent guarantee provided by the ICO is not a direct form of aid or a loan. Rather, it functions as a guarantee, where the Spanish government, acting through the ICO, assumes the role of a guarantor for a portion of the mortgage.

The primary objective of this guarantee is to enhance accessibility to the property market, particularly for individuals who may find it impractical to afford a standard mortgage where the requirement is to pay the full 100 percent amount.

Is there a minimum or maximum income?

When it comes to accessing the aid, there are specific income criteria set by the government. Here are the details:

The government has stated that young individuals with an annual income of up to 37,800 euros (equivalent to 3,150 euros gross per month based on 12 payments or 2,700 euros gross per month based on 14 payments) will be eligible for the assistance. It's important to note that this income limit applies per person. Therefore, if you are purchasing the house jointly with another person, the combined limit will be 75,600 euros.

Moreover, families with dependent children may have their income limit increased based on the number of children they have. For each child, the family's income can exceed the IPREM (Public Indicator of Multiple Effects) by 0.3%, resulting in an additional 2,520 euros gross per year for each child. In the case of single-parent families, their income can be 70% higher than the IPREM, which equates to an extra 5,580 euros gross per year for each child.

Please keep in mind that IPREM is a reference index used in Spain to calculate various social benefits and subsidies.

An example

If you wanted to purchase a Spanish property for €250,000, under normal circumstances, and without the ICO aid, you would have to find a deposit of €50,000 as this would be 20 percent of the purchase price. The bank would then lend you the remaining €200,000.

However, when applying the ICO guarantee scheme, the €50,000 would be guaranteed, meaning that the bank would lend you the full 100% which would be €250,000.

This would be a significant amount for most purchasers leaving them only to find the associated sales fees and taxes which could amount to around 10 percent of the purchase price.