Getting a Spanish mortgage
Before the recession hit Spain at the end of 2007, getting a mortgage for a Spanish property was pretty simple. Unfortunately, the crisis that hit the property market in Spain resulted in mortgage offers becoming rather elusive for several years, but in the last two years, as buyers returned to Spain and developers started work on new projects, the situation has eased for non-resident property buyers. According to Spanish Property Insight, new mortgage lending rose by over 29% in August 2017, a trend that is likely to continue.
Mortgages for non-residents
Spain actively encourages non-resident buyers, because property is a significant element of the Spanish economy. Non-residents can get mortgages in Spain; although they are subject to a few more restrictions than if they were a Spanish buyer. Remember that banks see mortgage son second homes as being slightly more risky. Their thinking is that if an owner runs into financial trouble, they are more likely to default on payments for the second home rather than their main residence. As a result, banks will ask for anything from 30 to 40 percent of the property’s value as a deposit, before making a mortgage offer. However, if you choose to be resident in Spain, the deposit reduces to around 20 percent.
The mortgage assessment
Banks may differ in their checks on creditworthiness. However, most will want to want to examine your current income versus expenditure and any loans you have to see if you can afford the mortgage. To do this they use an affordability ratio based on your net income after tax, and want to see that your debt repayments do not exceed 30-35% of your net earnings. They will also ask you to complete a personal balance sheet to show your existing financial arrangements, and provide documents to prove your income and outgoings.
Spanish mortgage interest rates
Spanish mortgage rates follow the European Central Bank lending rates, known as the Euribor. The average interest rate in 2017 worked out at around 4%. You will probably find that although fixed rate mortgages are available in Spain, they aren’t the preferred choice, simply because the Euribor has been so low for some time. In October 2017 it was -0,18, which is a decrease of 143% on October 2016. Interest-only mortgages are not commonly available in Spain.
You will need an official valuation of the property, which the y buyer must pay for. The cost a valuation depends on the value of the property, so it can range form a few hundred Euros to thousands. You will also need to provide he lender with the ‘nota simple’ from the land registry, which confirms that there are no debts on the property. The fee for setting up the mortgage is generally 1% of the value of the mortgage, but it can vary from 0.5% to 2%, but there is also a mortgage deed duty payment of around 1.8% of the value of the loan. In Spain, every document associated with the purchase has to be notarised and the notary’s fees are likely to be around 0.5% of the loan.
Using a broker
Some buyers prefer to use a broker. This is largely because the brokers have many contacts with the banks, know the notaries and can ease the process for new buyers. A broker can negotiate the terms of the mortgage with the bank, which is quite different to the situation in the UK, so having a broker who gets on well with the bank can be a real advantage. The broker’s fee will generally be somewhere between 0.5% and 1% of the value.
Start your mortgage search early
It is advisable to do your research about mortgages well in advance of making your purchase and many seasoned estate agents will tell you that having an advance offer from a bank before you start your search can give you a real advantage, especially if several buyers are interested in a property.
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