If you’re a cash buyer then that's great news, you can skip this step. If you're looking for an overseas mortgage then read this guide all about getting a mortgage in Spain.
Arranging any mortgage abroad can be a daunting prospect and Spain is certainly no exception. For the uninitiated, it’s difficult to know where to start and whether information you see or receive is correct.
This is complicated by the fact that banks lending in Spain do not always offer the same conditions to clients, even if they have similar profiles. The mortgage market in Spain is quite traditional in the sense that having the right contacts is crucial if you want to get the best deals.
Non-resident mortgages (60-70%) – for non-residents who pay their taxes outside Spain, the maximum mortgage amount is 70% of the purchase price (or valuation if lower), but some banks have a maximum amount of 60%. For fiscal residents who pay Spanish taxes, the maximum mortgage is 80%.
As a general rule, most banks will lend on the following criteria:
1) Over €100,000 loan minimum LTV 70%
2) Under €100,000 loan minimum LTV 60%, minimum loan €35,000
Mortgages for retirees - If you are over age 60 and in receipt of a pension, you can still have the mortgage in your own name. It is also possible to appoint a guarantor such as a family member to secure the borrowing, which can have potential inheritance tax benefits if they are also a part-owner in the property.
Construction mortgages – for those wishing to build their own homes, banks offer construction mortgages. These are complicated to explain and you should definitely speak to a broker, but broadly-speaking you can potentially borrow 60-70% of the land and construction costs combined.
Commercial - If you are buying a property for commercial use, such as a restaurant or a shop, for example, the maximum mortgage is 50% of the price (or valuation if lower). If you intend to run a business the lenders will ask for business plans and, where applicable, accounts for any previous business operating at the premises, as well as what previous experience you have had running a similar business.
Interest rates - Most lenders use the annual Euribor as the base rate and then add their own margin to this, for example, “Euribor plus 2%”. Generally speaking, they require that you contract different products with them and they give discounts to the rate for taking each product. Compulsory products are usually a bank account with the bank offering the mortgage and home insurance with that bank’s chosen insurer. In many cases, life insurance with the bank’s chosen insurer is also compulsory.
By using one of our recommended brokers they can secure a much lower rate than if you go direct to a bank. Where a bank may offer rates as high as Euribor + 3.5% if you go direct, our brokers can achieve Euribor + 1.5 - 2.5%.
Although the vast majority of mortgages are variable rate in Spain, fixed rates are becoming more popular, especially now that the Euribor is at its lowest ever level. A typical fixed rate for a 20-year term could be 2.99%, depending on the bank.
Interest-only – this is only offered for construction mortgages in Spain and, where offered, it is only for 1 or 2 years at the start of the term.
Term of mortgage – most mortgages can be arranged with terms of 25 years (for non-residents) and 30 years (for residents), usually up to a maximum age of 75. For non-residents, some banks have a maximum 20-year term.
The Qualifying Criteria
The lenders all use what is known as a debt-to-income calculation as the basis for deciding whether applicants will qualify for a mortgage. In basic terms, this means that your monthly debt commitments, including the new mortgage, must not exceed a given percentage of your net monthly income.
The typical percentage is between 30-35%, so here is a very basic example of how the calculation works for an employed applicant whose only debt is the repayment mortgage on their main residence:
Applicant earns £3,000 after tax per month
30% of £3,000 = £900
less UK mortgage of £500 = £400
So, they have the equivalent of £400 per month they can “afford” for the new mortgage in Spain.
There are many other variables to take into account, but this gives a very basic idea of how the banks assess the applicants for the mortgage. Again, we strongly advise working with one of our brokers, as they have an in-depth understanding how each bank works.
- Initial, no obligation, assessment - speak to a brokers or complete an online form and they will advise you on whether a mortgage approval is likely and what conditions could be possible.
- Mortgage quote – following the initial assessment, your broker will aim to send a full mortgage quote within 24-48 hours.
- Sign up - if you wish to proceed, your broker will ask you to sign the terms and conditions and arrange payment of a fee of €695, which comes with a money back guarantee, so if the mortgage is declined the fee if refunded (subject to the terms and conditions).
- Submit application form – your broker will assist you with completing the relevant application form and they will submit this on your behalf with the appropriate supporting documents, which they will request once you have agreed to proceed with the application.
- Decision from lender – if the mortgage is approved, the broker will confirm the conditions and ask if you wish to proceed.
- Set up bank account and instruct valuation – a bank account will be set up and you will be asked to deposit enough funds to cover the valuation fee.
- Valuation report – if the valuation is no lower than the agreed purchase price and the property has no legal issues, the completion arrangements can be made.
- Completion arrangements – the broker will work with the bank and your lawyer and they will confirm the funds necessary for completion, which must be transferred as soon as possible to your account with the lender. Once the funds are in the account, the lender will prepare everything and you can decide on a completion date at the notary.
- Completion day – the lender will draw up all the necessary cheques and arrange payment of the property and mortgage taxes from these funds. Once the property and mortgage deeds are signed, you become the owner of the property.
The process from start to finish usually takes 6-8 weeks, but there can sometimes be delays that are outside of the control of the broker or the lender. Your broker can advise on sensible timescales for payment of deposits and timing of completion, as well as deal with any delays if they arise.