Mortgages in Spain

Overseas Property

A guide to your mortgage in Spain

This guide is aimed at answering your questions about mortgage products available in Spain.

We can usually obtain mortgages for most types of property. To be mortgageable, any property must be structurally sound, be habitable, have a working kitchen and bathroom, and have mains electricity and water installed. Just as important, the property must fulfil all legal requirements, it must be properly registered and have the title deeds.

The mortgage market however is still very much in its infancy compared to the UK, and the market in Spain is changing rapidly.

At time of writing, we can obtain up to 90% of the mortgage valuation (more on this below) for a non-resident.

If you buy an "off-plan" property, or if the price of the property is below the mortgage valuation, this may mean that you can in actual fact obtain 100% of the actual purchase price.

Spanish banks can only lend on the basis of a mortgage valuation. Mortgage valuations are carried out as prescribed by law in Spain. Mortgage valuations exclude the VAT, Stamp Duty, and Property Transfer Tax, and all other costs of purchasing, which generally amount to between 10% and 11% (if buying without a mortgage), or between 12% and 13% (if you are buying with a mortgage).

New Properties:

If you are buying a new property, it must be registered (or in the process of being registered) before a bank can carry out the valuation. It cannot be registered until it has been completed, the “división horizontal” (splitting up the development into the individual units) has been registered, and the certificates for “fin de obra” (completion of construction) and “primer ocupación” (first occupation) have been issued. Usually a bank can order the valuation once the deed of “división horizontal” has been prepared and we do not need to wait for the nota simple. We will contact the builders about this, and agree with them when the valuation can be ordered.

The bank will not release any funds until the certificate for first occupation and the 10-year insurance policy against property defects have both been issued. This is for your protection as well as the banks.

In addition, it is important to note that in Spain the property does not legally exist until it has been registered. Therefore you do not buy it until then, and the contract you sign at the start is a promissory contract whereby you commit to buying it when completed and registered. Therefore, as you do not own it until registered, you cannot mortgage it until then. As a result, you cannot finance any stage payments required by the builder from the mortgage in Spain. If appropriate, we can help by re-mortgaging your UK property for the amount of the stage payments, and doing the mortgage in Spain for the balance on completion. This has the advantage that, providing you have sufficient income and equity in the UK property, you can finance 100% of the cost of the property in Spain (or more).

This situation also means that any stage payments you make are legally just an unsecured loan to the builder. We always recommend an English-speaking lawyer to check that the developer has the legally required bank bond or insurance policy, so that in the event of his going bankrupt, your payments will be protected. Although this cover is required by law, the latest survey showed that some 20% of Spanish builders still do not provide it.

Resale Properties:

The legal system in Spain for house purchase and mortgage valuations can give rise to a number of problems:

It is quite common in Spain for vendors of resale properties to demand that you pay part of the price in cash (so-called "black" or "B" money), and under-declare the official price on the escritura. This practice seems to be particularly common in the more traditional and rural areas. The under-registration itself is not illegal, so most notaries will accept it; but the resultant avoidance of tax is. It is also creating a potential CGT liability to you for in the future, so both for legal and financial reasons we have to advise that you do not agree to under-declare by more than 25% (the authorities do not normally take any action if the under-declaration is less than this level). It is often something that vendors will try to slip into the deal at the last minute, so it is as well to make your intentions on this clear from the outset. So far as the mortgage is concerned, this cannot exceed the amount being declared on the escritura.
The practice of under-declaring sales prices can have a major impact on the mortgage valuation of a property. Mortgage valuations are based on the declared values of a number of comparison properties. The problem is that the valuer only picks up the declared prices from the Property Register, so the resultant mortgage valuation is based on these lower declared values rather than the full price. For example, it only takes one property to have been under recorded by 30%, to reduce the average value of the comparison properties by 5%, and this reduced value is then applied to the property being valued.
If buying a new property “off plan”, this problem is less likely to occur, because the price rise during the construction is likely to offset any shortfall, and for the comparison other new properties will be chosen. It is far less common for the builders to under-declare the price on the escritura.
Mortgage valuations are essentially only "bricks and mortar" valuations - the value of any "above-average" area of land you may be buying is not included in the valuation. So if you are buying a rural property and paying a premium for a large plot of land, the "subjective" additional value of this will not be taken into account in the mortgage valuation.
The mortgage valuation is based only on the size of the building that is registered at the Property Registry. With rural properties especially, owners often try to avoid tax, and we sometimes find that the building has not been registered at all. In cases where the property has not been registered at all, or if only part-registered, and where the mortgage required is a high loan-to-value ratio (LTV%), the bank will need to be able to value the full size of the actual property, and in order to do this the vendor will first have to get retrospective planning permission and then register a deed of "obra nueva" to register either the whole property or the excess area (exceso de cabida). VAT will have to be paid on the value being registered at 7%.
All land in Spain is zoned either as "suelo urbano", where planning permission can be obtained and building is allowed; or as "suelo rustico", where planning permission cannot normally be obtained. Getting approval for the changes mentioned above will normally not be a problem if the land is zoned as "suelo urbano". But if it is zoned as "suelo rustico", theoretically it will not be possible, but this depends on the local town hall. In the past many local authorities have allowed the changes required, so in general there has not been much difficulty. However the situation has now changed and provincial governments can now take legal action against local authorities for issuing building licenses when they should not have done so and as a result it is now much more difficult to obtain retrospective planning permission and changes in registration.

Fortunately it is quite easy to check the registration of any property from its “nota simple” (the extract from the Property Register). Banks need a copy of the “nota simple” for any property before obtaining a valuation.

How much can I borrow on my income?

Spanish banks will normally lend on the basis that your total monthly repayments should not exceed 35% of your (joint) monthly disposable income (after tax and national insurance).

If the mortgage required is up to 50% of the property value, and if your net income is relatively high, most banks will increase the affordability ratio guideline from 35% up to 50%.

What are the interest rates?

The interest rates are linked to EURIBOR: the rates for loans vary from bank to bank and are around 5%. Repayments are due in Euros and so will fluctuate with the exchange rate.

The rate applied to a mortgage will be that in force in the month when the mortgage is signed and the funds are released. That rate will then apply to the account for the following 12 months.

What are the other taxes, fees and costs involved?

The fees charged for obtaining the mortgage are a valuation fee of around 0.1% of the property value (usually subject to a minimum of around 300 euros).

In addition, there are other taxes and costs which you have to pay for registering the mortgage: stamp duty of around 1.8% is charged on a mortgage deed (only 0.1% if it is to be your main residence) and notary and property registry fees of up to around 0.5% of the mortgage amount. These taxes and fees are in addition to the costs involved in buying the property.

These costs are in addition to the VAT & stamp duty (if new), or transfer tax & plus valia tax (if resale) and notary and property registry fees for buying the property itself.

There are several items that we cannot accurately estimate from the price:

The notary fees, which are based on multiple sliding scales plus a charge per page of the contract;
The stamp duty, which depends on the province in which you are buying;
The transfer tax, which depends on the province in which you are buying (6% or 7%);
The fee charged by your lawyer – we have included they typical fee of 1% of the price;
Any “plus valia” tax – this is a municipal tax charged on the increase in the value of the land (not the building), since the last sale; and
The buildings insurance which depends on the rebuilding cost, taking into account the quality of construction and size of the property, rather than its price.

How long will you lend for, and is there any age limit?

The minimum term is 5 years. Banks normally lend for terms up to 25 years providing that the mortgage will be repaid before the age of 70. However it is now possible to borrow for 35 years, up to age 80.

Are interest only / self-certification loans available?

Yes – we can obtain interest only mortgages of up to 40 years interest only, subject to conditions. Self-cert mortgages are available upto 65% of the property valuation - talk to us for more details.

Can I repay the mortgage early?

You can repay your mortgage at any time. There is normally a 1% fee charged on the amount being repaid (so, on £10,000 this is £100). If you sell the property together with the mortgage that the buyer then takes over (a "subrogated" mortgage), this fee will not be charged. But like most things in Spain, it is negotiable.

How do I apply for a mortgage?

We arrange everything either by telephone and post, or by e-mail. The whole process takes around 5 to 6 weeks. There are ways in which this can be shortened if necessary.

Step 1 is to ring us on (0034) 965 857 688 or email info@ultimatehomes-spain.com so we can go through the transaction with you to and get the ball rolling.

Step 2 is to complete and return the banks documentation. This will then be checked and if OK submitted to the bank’s mortgage administration centre for their approval, and if OK, they will send you an approval in principle.

You can make your application before you have found a property, so that you have an approval in principle and you know how much you can borrow before you commit yourself to a property. In this case, the bank will keep the file open until you have found the property, or, if you are buying a new property, until the property is ready.

Step 3 Once you have found the property (or, if new, about 2 months before completion), you need to sign all the necessary papers (mortgage, current account, debit card, Internet banking, valuation, residence declaration), together with the list of the documentation you will need to send to the bank to prove earnings.

Step 4 is to ask your bank to send €500 (around £350) as an initial deposit to your new current account to cover the costs of the bank valuation.

Step 5 The bank will request sight of the nota simple. This is an extract from the property register, which proves that the property is registered and shows any debts charged against the property. Without the “nota simple” the bank cannot order the valuation. If it is a new building, the developer should register it and obtain the “nota simple” a few weeks before you are required to sign, so that we have time to do the valuation and issue your offer. In practice however, this does not usually happen, so we have to obtain from him the preliminary certificates which should enable us to proceed to valuation. If the building is not registered, the bank cannot grant a mortgage.

Step 6: If the documentation is in order, the bank will order a valuation of the property, and when this is received, have your application underwritten. The valuation takes about 10 days, and another 2 or 3 days to have your mortgage application underwritten and approved.

Step 7: The bank will confirm to you its mortgage offer, and copies can also be sent to your lawyer, so they know the transaction can proceed. The file is then sent to the nearest branch which will prepare the official documents which will be signed at the notary’s office. A representative of the bank will also be at the meeting with the notary to sign the mortgage deed, and hand over a banker’s draft for the mortgage amount. Completion can therefore be just a few days after the offer is issued.

Step 8: at the meeting with the notary, all the legalities will be finalised, and you will be given the keys, so you can move in.