Arranging finance to buy a property in Spain

With the lifting of almost all exchange controls, both residents (in Spain) and non-residents may now obtain loans and mortgages against their Spanish property in any currency from any bank in the world - if they can find a bank willing to lend against property in another country.

The good news is that the inflation and interest rates are lower than the UK, with a prime lending rate of around 4%. Spanish bank mortgages are now being offered at rates between 4.5% and 5%, amongst the lowest in Europe.Similar low rates are also being offered for the purchase of Spanish properties from Gibraltar based subsidiaries of major UK building societies.At the moment it looks an attractive proposition to take out a mortgage in Spain.

The downside is that if the euro begins to recover in value against the pound, although your property will be worth more, your monthly mortgage payments would increase.Normally the maximum term for a Spanish mortgage is up to 25 years on 75% of the valuation of the property. There are so many different packages available that we suggest you use the services of an experienced international mortgage broker who will explain the pros and cons as well as providing you with the mortgage they feel would suit you best at the most favourable rates.

Buying Costs of Property in Spain

Although property, particularly rural houses in Spain, are generally cheaper than in the UK the cost of buying is higher.The main reason for this is the purchase tax of 7% on all property sales, this is known as IVA and is the Spanish equivalent of VAT. You will also have charges for land registry fees, legal costs and notary charges.

These will take the buying costs up to a around 10% of the purchase price.Once purchased the annual taxes on a Spanish property obviously vary with the property in question. In general they are not too penal, a typical two-bedroomed apartment will usually have total annual costs of between £1,000 and £1,500.This includes charges for water, electricity, waste disposal, community charges, insurance and annual property tax. It also includes a payment to a Spanish representative to account for these payments (a Spanish Accountant).

More useful info about mortgages in Spain

How much can I borrow?

Lending in Spain is based on the valuation of the property, your residency status, the purpose of buying as well as your income. For urban properties 70% - 80% can be achieved although for 'rustic' property only 50% is available. Depending on the valuation of the property, it is possible to get up to 120% mortgage.

What types of mortgages are there in Spain?

Almost all mortgages are capital repayment and some include an interest only term. Fixed rates do exist but the interest rates are expensive. However, the Spanish mortgage market is constantly improving and the range of mortgage options has grown over the last couple of years.

How long does it take to arrange a mortgage in Spain?

It can take anything from 2 to 6 weeks to arrange a Spanish mortgage so 4 weeks is a good indicator. Remember to allow for this extra time after you have decided on a property and paid the reservation deposit. A month on average is needed to receive your income documents and to instruct and obtain the valuation.

How much will a Spanish mortgages cost?

In general terms if you are purchasing without a mortgage you will need to pay 10% of the purchase price in taxed charges and fees. If you are buying with a mortgage you will need to pay up to 12%.

Legalities of Buying Property in Spain

There are differences between buying a property in the UK and in Spain. The following brief guide explains in simple terms the process of purchasing your Spanish property - hopefully enabling you to proceed with confidence and peace of mind.It does not cover all aspects of Spanish property law and is not a substitute for professional advice and representation. It is advisable that you have your financial arrangements more or less in place so you are ready to proceed quickly (refer to finance section).

Once you have settled on your chosen property you will need to appoint an independent lawyer who is experienced in Spanish property law and has a good knowledge of the area you are buying into. In the case of resale the lawyer will check that the property belongs to the seller and has the necessary building permissions. An important part of the lawyer's responsibility is to check the seller is free of debt because under Spanish law any debts will pass to the new owner. For new construction the same checks will be made on the land along with a background and financial check on the builder.

When your lawyer is satisfied you provide a signed contract with a non refundable 10% deposit which will then be matched at the same time by the seller. This is to stop the practice of gazumping, which because there is now too much to lose, does not happen in Spain. If you cannot be present in person to sign the contract or indeed the final completion contract you can grant your lawyer (a poder) power of attorney so he can complete on your behalf.

Ensuring Compliance with Spanish Law

The contract will state the dates for subsequent payment of the balance due, which needs to be carefully observed. You will of course be provided with a copy. Your lawyer can also arrange your NIE (foreigner's identity number), residency application and Spanish bank account as appropriate. On completion day both parties or their representatives with power of attorney will appear before the Notary, who is a government official responsible for the execution of public documents and to ensure compliance with Spanish law.

The Notary acts for neither party and does not replace the need for your own lawyer but witnesses the signing of the Escritura de Compraventa (the transfer deed). At this time the balance of the purchase money will be paid to the seller and any remaining purchase tax and fees will be paid. You will then have the keys to your new property and a copy (Copia Simple) of the title deed until the formal deed comes to you from the land registry.

At this point you can instruct you lawyer to set up accounts for utility services such as water and electricity and Spanish resident taxes which he can arrange payment of through your Spanish bank. (See also Buying Costs section).

On a final note it is worth considering that the inheritance laws in Spain are different than in the UK. In the event of death your property may be divided up equally between your partner and children. In the UK unless you have made preparations otherwise it would all revert to your partner. It is therefore advised that you instruct your lawyer to make a local will to suit your wishes.

For more information

If you are a potential buyer and require further information on any of our properties listed please contact Montichelvo Spanish Property Sales or if you have a property for sale click here to advertise with us.