Property Finance

According to a recent report, 36 per cent of the tourist housing stock in Spain is owned by Britons, with 500,000 British people in total owning property in the country. You will not be alone!

Mortgages in Spain are attached to the property and written into the escritura [tile deed], not to the person who takes out the mortgage, which is one of many good reasons to always use an abogado [Spanish lawyer] when purchasing. They tend to be expensive to set up with administration fees of up to 1,500€ to 3,000€ (£1,000- to £2,000) being the norm.

Compared to the UK there aren't a huge raft of options. Most banks offer a repayment mortgage with either fixed or variable rates. It’s very rare to take out an interest only mortgage. Deciding what is the best mortgage for you depends upon your age and your social and economic situation. On the whole, the most popular mortgage tends to be the variable repayment plan, payable back over an average of 15 years.

LTV Loan to Value
Spanish banks will usually lend non-residents between 60% and 80% of the declared value of the property, secured against the property in Spain or home country property, over 5, 10, 15 or 20 years depending on whether you are a resident or not. Some banks offer 100%.

Higher percentages, fixed rate, and none status mortgages are available in some cases; the key to obtaining the maximum mortgage offer lies is in achieving the maximum valuation, which is the job of the Tasador [valuer]. There are independent tasadors, some banks will accept valuations from a variety of companies, others have their own tasador, but the resulting valuations can vary considerably.

On purchases of land the maximum will usually be around 60% of the valuation, which also applies to country houses constructed on land classified as "rustic"

On land which you own outright, an approved architect's project, with the building license paid, can be mortgaged at up to 60% of the valuation of the completed project [construction and land]. This figure is more than sufficient to cover 100% of the building costs of normal residential construction. Lenders will not finance construction on land that already has a mortgage attached.

Income Criteria
You can usually borrow up to 3 times your gross annual income, but generally the monthly repayment should not exceed 30% of your net disposable income.

The lender's rate will be a margin over EURIBOR - generally EURIBOR + 0.5% to 1% but individuals circumstances can dictate higher or lower rates. Fixed rate mortgages are available at slightly higher interest rates. Some lenders offer a lower Start -Up interest rates of for the first year or interest only mortgages ideally suited for funding new construction. Variable rate mortgage interest rates will be reviewed once a year.

Repayment Periods
Most commonly 10, 15 or 20 years, but up to 35 years can be arranged.

Early Redemption Charge
From zero to 1% depending of the loan, some lenders on charge for cancellation only in the first 5 years, others make no charge at all. It is important to choose your lender carefully if you are considering an early repayment option.

In-Place Mortgages
Many new properties under construction on the Costa del Sol are already mortgaged by the developer as a means to raise capital to fund the construction. A purchaser, under the direction of an abogado [Spanish lawyer] can take over such a mortgage when purchasing such a property. By agreement with the bank holding the mortgage the amount of mortgage taken can be increased up to a maximum of 80% of the valuation of the completed property

This is probably the cheapest way for an individual to obtain a mortgage, as the setup costs will have been already paid by the developer. Sometimes resale properties are also offered for sale with a mortgage in place; your lawyer should check out the terms and conditions applying to the mortgage, if you are to consider taking it over.

The Process
For obvious practical reasons, it is vital to know how much money you have available, before you start looking for a property. Apart from the obvious, you may need to act fast to reserve a good property (they sell fast) and you should not do so unless you know, to a fair degree of confidence, how much you can borrow. Having your qualification documentation ready (see below), and seeing a bank or broker, before you start looking is plain common sense. You can also get a pre-approval mortgage, which is an agreement in principal, but this really is more for peace of mind.

You will need the actual property details before you can get a normal formal mortgage approval. You will also need a valuation survey and the mortgage offer is based on a percentage of the valuation. A survey normally costs around €300. If the property is an older one, we would recommend a structural survey, but these aren’t so commonplace. As long as it’s not August (everyone in Spain is on holiday during this month) and everything goes smoothly, the process should take approximately 3 weeks.

You will also be required to take out building insurance and life insurance to cover the amount of the mortgage, you can take either straight life insurance, or an endowment style policy with the appropriate life insurance attached, which should give you a cash lump sum when the policy matures.

Home insurance taken out in Spain tends to be somewhat cheaper than comparable insurance taken out in the UK. This can be fairly easily demonstrated by anyone prepared to take the time to collect comparative quotes. However as anyone who has ever needed to claim on their insurance knows, the critical issue is not so much the price of the premiums as the extent to which the insurance company pays out when you need it to. Taking out the cheapest insurance and saving 50€ a year can prove expensive should you ever need to make a claim as, generally speaking, the cheapest policies also give insurance companies the greatest wriggle-room. Therefore when taking out insurance we advise you to look for a balance between price and cover.

Qualification
As in the UK, you’ll be required to provide proof of identity and proof of earnings, typically by supplying your last three salary slips, recent bank statements, a copy of your passport and sometimes a letter of reference from your employer. If you are self-employed, you’ll need to provide the last few years of your accounts, a report from your accountants, most recent tax return, recent personal bank statements and a copy of your passport. Proof of payment based on your ability to pay with income received from renting the property will not be taken into account by Spanish banks. Liabilities should not exceed 35% of your net monthly income.

You will also need to provide the bank with a copy of the offer letter or sales contract (Contrato privado de compraventa) and a Nota Simple from the property registry, which identifies what, if any, debts are attached to the property. You will need to have an NIE (Numero de Identificación para Extranjeros) which is an ID number that everyone needs (residents and non-residents) in order to buy or sell property in Spain.

Banks and Mortgage Funders
You will also need to open a Spanish bank account - ultimately at your mortgagor bank (if Spanish) as well as at another bank if you split your property funding source from your day-to-day account management. You need to 'shop around' under both headings.

Firstly, bank charges for maintaining an account and commissions for transferring money into the account, vary considerably from bank to bank. Some provide good online banking, which is useful to check if bills need to be paid in your absence, and funds transfers with zero commission.

Secondly, mortgage interest rates in Spain vary, but are generally much lower than in the UK, and competition between Spanish banks is fierce. So you would also be wise to shop around for the best funding deal. Don't accept the first offer. Ask for a copy of one bank's offer and then take it to a different bank to see if they can improve the offer - they often will. Then take the improved offer back to the original bank . . .

You may find it easier and initially cheaper to take out a mortgage with a bank in your current country of residence. Be aware, though, that exchange rate fluctuations can have a significant impact on your mortgage repayments as the value of the Euro rises and falls. Getting a mortgage with a Spanish bank does have certain important advantages - low interest rates, favourable write off conditions, easier for taxpayers to sort taxes out, no expensive bank commissions caused by international bank transactions etc. A few UK banks (e.g Halifax) have Spanish branches here on the Costa del Sol, and they offer mortgages built around the Spanish market. If you take out the mortgage in Spain, then you will be making the payments in Euros and not having to rely on good exchange rates.

Halifax Mortgages
In a move in May 2005, aimed at those thinking of buying a second home in the sun, Halifax mortgage rates for the company's properties in Spain were cut. Halifax's Spanish arm, Banco Halifax Hispania (BHH) has reduced its mortgage rates to 3.265 per cent for loans up to 60 per cent and 3.515 per cent for loans up to 70 per cent of the property value.

The bank has pointed out that the move will benefit the many Brits who are buying a second home in Spain or even moving permanently to Spain to escape the British weather. Ian Smith, head of European operations, said: "We are continuing to see low levels of interest rates in Spain which makes it an excellent time to finance that dream home in the sun. As we move into generally what is a busy house buying period, this latest reduction in interest rates makes that overseas property even more affordable." The Banco Halifax mortgages can even be arranged in euros, with a UK team on call to answer questions on buying property in Spain.

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