Spanish Mortgages Explained

In many ways, buying a house in Spain is just like buying a house in the UK, or anywhere else for that matter. You need two very important things: to find the house that’s right for you and to find the money to pay for it! For many people that money will come in the form of a mortgage: but how do you secure a mortgage in Spain? And how does the Spanish mortgage industry differ from the industry in the UK? Here’s everything you need to know:


Finding the Right Mortgage

There are no restrictions on foreigner investors purchasing property in Spain, either as homes to live in themselves or even as investment purchases. What’s more, because they are so many expats choosing to purchase properties in Spain, some international and Spanish banks now offer specific mortgages aimed specifically at expats.

It’s essential that you shop around when choosing your mortgage, as although there are officially now restrictions on purchase price or nationality within the Spanish mortgage industry, certain banks and products will be preferential to buyers who are purchasing property in specific regions or are from certain countries.

You will also need to decide whether you will be living permanently in the property you purchase, using at a holiday home, or purchasing a buy to let property. This will also have an impact on the kind of mortgage that you will be eligible for.

The biggest difference between residential and non-residential loans is the maximum loan-to-value (LTV) that banks will allow. The loan to value ratios offered by Spanish banks are considerably higher, and more competitive, than other European banks for certain mortgage types. And example of this is that it is now possible to borrow up to 100% of a property’s value when you are buying a property in Spain that has been repossessed by the bank.

If you are a resident of Spain then, as a general rule of thumb, you can expect to borrow up to 80% of the value of the property you are purchasing and if you are a non-resident then you are likely to be limited to a loan to value ratio of between 60 and 70 percent, depending on the mortgage type that best suits your needs.

Looking for a perfect property but concerned about having the equity you need to meet these loan to value requirements? These may be circumnavigated if the bank deems that the property you have chosen is worth more than you have agreed to pay for it. For example, if the bank’s property assessor valued your property at €125,000, you could traditionally borrow up to €87,500, even if your purchase price was only €100,000.

Calculating the Costs

Many people forget to include the costs of acquiring a mortgage when calculating the affordability of making the big move. You should allow up to 10-15% of the total purchase amount for various transaction costs if you’re using a Spanish mortgage provider. Typical closing costs include transfer and stamp taxes, the bank’s arrangement fee as well as a fee to open your mortgage account, a notary fee and registry fee, and finally a bank assessor’s fee to cover the costs of your initial property valuation.

Residential properties are subject to various Spanish taxes, which are all paid by the buyer. Transfer tax is up to 10% of the purchase price, depending on the property’s location.

Finally, don’t forget that you will need to allow a certain amount of leeway in your monthly budget to cover the cost of your property insurance. All Spanish residential property owners are legally obligated to have home insurance to cover the value of the property. You are not legally obliged to secure life insurance, but it is strongly recommended that you do so that your property is protected should anything happen to you.

Gathering the Right Documentation

Ready to take the plunge and apply for your Spanish mortgage? Whether you decide to go through a Spanish bank or an international mortgage lender, you will need to provide the following items at the time of making your application:

  • NIE number (This is an identification number issued to all foreign nationals)
  • Proof of employment or income ie details of your pension if your retired
  • A pre-agreement with the seller detailing the price of the property
  • Proof that the property tax is paid to date
  • Details of your current debts and mortgages, if you currently have any
  • Copies of all your existing property deeds (in Spain and elsewhere in the world)
  • Records of your current assets
  • Any prenuptial agreements (if applicable).

 If you’re ready to find the Spanish property of your dreams then why not get in touch with our real estate experts? We’re ready and waiting to help turn your dreams into reality.