GETTING TO GRIPS WITH SPANISH MORTGAGES

Notary
Getting a Spanish mortgage used to be as simple as buying a loaf of bread ten or fifteen years ago, and it seemed that all you needed to qualify was a pulse and you were in the club. However, unfortunately the Bank of Spain paid a very high penalty for its generosity when the economic crisis took a hold, and it is still battling to recover today. In this sense, the mortgage process has reverted to the opposite end of the spectrum, becoming extremely difficult to meet the criteria, with terms and conditions also being incredibly strict. If you have found a property that you are interested in purchasing, but will require finance to complete the sale, there are many factors which you must consider – the most important one being that Spanish mortgages are very different to those offered in the UK and other parts of Europe. What makes Spain so different is that it has a Notary system, so everything relating to mortgages, personal loans and various other civil law agreements must be authorized before a Notary before they are considered “legally binding”. The other significant difference, which you need to be aware of, is the rates of interest paid and additional costs attached to receiving a mortgage. Historically, mortgage rates were always lower in Mainland Europe and the Euro zone, but Spain has comparatively high entry levels, which fluctuate somewhere between 3.5% and 4% of the amount borrowed. Another factor which will have a huge impact on the amount of tax you pay is whether you are a Spanish “resident” or “non-resident”, which differentiates between those who live in Spain permanently and pay their taxes here and those who do not.

Mortgage Fees
It is important to have some understanding of how the mortgage system works before you make a commitment to buy, and ideally before you even commence your property search, because it can affect how much money you actually have at your disposal.
There is nothing more heartbreaking than finding your dream home and visualizing yourself sipping vino on the terrace, only to discover later on that it is far beyond your budget. As a rough guide, there are five major costs attached to the mortgage being granted:

1) Spanish Mortgage Deed Duty- This encompasses 1.8% of the loan.
2) Bank fees- These typically lie around 1% to 1.5% of the loan.
3) Notary expenses- These can be up to a maximum of 0.5% of the loan value.
4) Valuation fee- These are normally around 0.10% of the value of the property, with the addition of any fee you agree to pay a mortgage broker, typically being around 80 to 100 euros.
5) Bank Charges- All Spanish banks charge an arrangement fee for dealing with your mortgage, which will vary in accordance with the establishment’s terms and conditions. Spanish bank opening fees are payable on completion. All other costs in relation to the Spanish mortgage deed including mortgage tax, registry costs and some of the purchase deed costs are deducted from your gross mortgage advance.

All of this obviously means that the sum that you actually have to spend, is considerably less than that which you qualified for. It is not permitted to add any costs onto the Spanish mortgage unless the property’s valuation level allows leeway for this. Therefore, it is imperative that you accurately assess and account for ALL of your expenses to ensure you are not left short of funds for completion day. Most mortgage or sales advisors will recommend that you allow at least 12 % of the purchase price to cover the finance costs and additional fees, and it is also advised that you discuss all of this with your Lawyer prior to attending the notary so that you understand exactly what it is that you are paying for.

Escritura
A standard mortgage loan is around 70% for non-residents and up to 80% of the valuation of the property for residents – again, note that they are not based on the purchase price. Whilst linked to a percentage of valuation, most Spanish mortgages cannot exceed the price declared on the “Escritura” or title deeds. They are generally based on a variable rate and a repayment basis is given in accordance with the age, health and circumstances of the applicant. The mortgage term might range from five up to forty years, and most Spanish banks will expect the mortgage to be repaid by the age of seventy, but it is possible to obtain a mortgage in Spain up to age eighty.

Interest Rates
The variable rate used in Spain is determined by the yearly “Euribor” or European interbank offered rate, and the interest rate reviewed annually. This is fixed for the first twelve months, at the interest rate which the euribor is at during the month of completion, plus the fixed margin above that which your selected Spanish bank is charging. Certain offshore banks can provide mortgages in sterling secured against your Spanish property purchase, which are then linked to the Bank of England base rate and follow UK mortgage guidelines. The number of interest only and fixed rate mortgages available in Spain is also increasing, with fixed rates tending to be slightly higher than the prevailing variable rate.

Equity Release
As in the UK, it is possible to release equity and remortgage an existing property in Spain, in order to fund an additional property, although there are only a handful of lenders who are authorized to arrange do that. As the legal process relating to Spanish mortgages is so complicated and costly, it is very difficult to make alterations to the details further down the line. Raising funds against a Spanish property, releasing further funds, or changing mortgage terms is controlled by the Bank of Spain. Therefore, bear in mind that additional tax, bank and notary costs will still apply.