Thinking of moving to Spain, and decided you’d rather buy a house than rent one? Wondering whether it will be easier to get a mortgage, and whether you have enough savings to make this work for you? Getting a mortgage without savings has always been possible in Spain, but coupled with the drop in property prices caused by the Coronavirus pandemic, this may mean that it is easier than ever to secure property in the Cala de Mijas market without substantial savings.
Here we will further assess what property hunters with a very small deposit value can achieve in Spain in 2021:
Have Property Prices Tumbled?
There can be no denying that property prices have dropped slightly in Spain throughout 2020 and into 2021, but in good news for existing Spanish homeowners, these drops were not as steep as was originally forecast. In fact, the Spanish consultancy firm Gesvalt has even suggested that in the first quarter of 2021, property prices in seven Spanish regions actually rose slightly. The overall situation is considered to be stable; whether the drop in the price of second homes will be as sharp has been predicted will depend on whether the economy can be strengthened by a recovery in the tourism industry, and potential overseas property buyers can visit the country once more.
Securing a Spanish Mortgage After the Pandemic
The pandemic has a mixed effect on the mortgage market in Spain: the country’s National Statistics Institute recorded a drop of 7.6 percent in the number of mortgages approved in 2020. But there are many factors that could have led to this drop, not least the huge number of people that lost their jobs due to the pandemic, and the two month-long lockdown that made looking for properties and securing a mortgage near impossible.
If you have job stability, then you are unlikely to find it any harder to secure a mortgage now than it was pre-crisis: you may just need to show more evidence of this security than you did before. Anecdotally, some banks are being much stricter and more frugal when it comes to offering clients mortgages. The concept of job stability covers civil servants, and anyone with a permanent contract inside an organisation that hasn’t been impacted by the crisis.
If you do fall in this category? Then there’s nothing but good news for you: borrowing money has never been cheaper! Interest rates in Spain are lower than they have ever been in recent history, meaning that anyone who is eligible for a mortgage will find that it is an incredibly favourable one. From this perspective, there has never been a better time to buy a home.
Understanding Your Options Without Savings
If you’re reading this article, it’s likely that you’re wondering whether you will be able to secure a mortgage without substantial savings. Before the pandemic struck, it was possible to secure a mortgage in Spain with a ten percent deposit, and in some circumstances even 100 percent mortgages were available to some buyers. However the 100 percent mortgage trend has all but disappeared. Whilst you can secure a mortgage with a 10 percent deposit, in real terms, you will need to have a 20 percent deposit to be perceived as an attractive proposition to a Spanish bank.
This ascertain is supported by the numbers, as according to the Bank of Spain,the percentage of mortgages of more than 80 percent represented 9.4 percent of the total during the first quarter of 2020, while in the same period of 2019 it was 13.1 percent.
For younger buyers, there is no ‘help to buy’ style scheme in Spain (this is a popular model in the UK). Santander Bank expressed interest in implementing this kind of scheme, but outside of initial exploration, nothing has come from this yet. It may be that we see a return of rent-to-own schemes, however. These were suspended in 2008 but they are making a return now as private sellers are beginning to include this option in their ads again, so that they don’t have to lower the prices of their homes as a result of the crisis.
Wondering how the rent-to-own scheme works? Buyer and tenant can deduct the monthly rents, totally or partially, from the final selling price of the property and not pay interest, because there is no debt, for the duration of the purchase option. This is a scheme that is being increasingly favoured by young people, because it enables you to buy a property without having a large amount of your property value in savings.
Supporting Your Mortgage Application with Savings
In short, you will need to have some savings if you hope to apply for a mortgage in Spain. For many Spanish (and wider European) families this poses a problem as a result of the temporary dismissals or unemployment that has risen considerably as a result of the pandemic. In order to make ends meet they have dipped into their savings, causing them to dwindle. For others, the pandemic has proven an opportunity to grow their savings: if they maintained their employment, and had no opportunity to invest in anything else, they are likely to have saved more than ever before. According to the Bank of Spain, January and September 2020, families in Spain achieved a ‘forced’ saving of around 2.5 percent of the country’s GDP.
At this point, banks will expect you to have a deposit of at least 20 percent, and in many circumstances this may be higher. Many banks have set their ideal investment level from potential homeowners at 30 percent, although this figure may cover your transaction costs as well.
In order to secure a mortgage at this point, your lender will expect you to demonstrate that you have a stable income and a job contract (in a field that won’t be affected by Covid), at least a 20 percent deposit, plus an additional 10 percent of the property value to cover the taxes and mortgage charges. Depending on the value of your property, you can expect the savings you will need to be anything between €40,000, for more expensive properties €80,000.
Can You Afford Your Mortgage Repayments?
It’s important to consider not only if you can afford the deposit to secure your mortgage, but also the mortgage repayments once you have your mortgage in place. Of course, it would be impossible to detail exactly how much your mortgage repayments would be here, because this would depend on the value of the property you purchase, and the size of the deposit you are able to put down. To give you some indication of costs, though, Spanish families pay on average €599 a month for their mortgages.
Where you choose to buy will also have an impact on how much of a commitment this is, and there is a big difference in mortgage costs from province to province. In Malaga and Mallorca, for example, homeowners pay 27 percent of their wages towards their mortgages. By contrast, in Lugo (Galicia), Castellón (Valencia region), Murcia and Placencia mortgage payments make up less than 15 percent of the average monthly salary.
Has this information helped you decide that you’re ready to purchase a property in Spain? Why not get in touch with one of our local property experts to find out more about we can help you with your property search. Whether you’re looking for golden mile properties in Marbella or bargain property in Andalucia, we’re perfectly placed to turn your dreams into a reality. We can’t wait to help you!