Information on the Costa del Sol - Guide to Obtaining a Mortgage in Spain

Your Guide to Obtaining a Mortgage in Spain

Most Developers will have a loan scheme in place on ‘off-plan’ purchases, but you need to be aware that these are only available on completion and will not cover any stage payments i.e. normally 30% deposit. Resale properties are also sometimes offered for sale with a mortgage in place that can be easily transferred.

What is the cost of arranging a mortgage?
The cost of a Spanish mortgage varies greatly from lender to lender and also from broker to broker. Generally you should allow between 2- 3% of the purchase price of the property.

Why is it so expensive?
The up-front costs on a Spanish loan are much higher than in the UK for a number of reasons.

Firstly the Bank itself will charge an arrangement fee ranging from .75% - 2% of the loan depending on the loan to value and the complexity. The higher fees are generally charged for ‘non-status’ lending or bridging finance and for a normal mortgage you should not pay more than 1.25%

There is also mortgage tax of 1% of the value of the loan and 1% of the interest due to be accrued over the term of the loan e.g. on a loan of €100,000 over 25 years at 3.5% the total interest payable is approx. €50,990 making the tax payable €1000 + €509.90

As a Spanish mortgage is attached to the property and not the owner it has its own title deed. You will have to pay for the deed to be produced and also land registry and notary fees. The cost of this varies from area to area and on the value of the property.

Valuation fees vary depending on the value of the property and the valuation company but start at about €200 for a small apartment.

Lastly you have the services of a mortgage broker and again this can vary tremendously. Some charge nothing and just rely on the commission the banks pay them whilst others charge up to 1.5% of the loan. It is recommended that a broker is used if income is hard to prove as they will know which lenders are the most flexible and can save valuable time.

The break-even point for a Spanish loan as opposed to a UK loan or remortgage is approximately 5 years, so if you are considering paying the loan off in full before that time you need to think long and hard about which way to proceed as it may be cheaper to raise the funds at home.

How much can I borrow?
As general guide a non resident will be able to borrow 70%-80% of the valuation of a property, whilst residents can borrow up to 100% of the valuation. The key to obtaining the maximum mortgage offer is in achieving the maximum valuation, which is the job of the Tasador [valuer]. Most Banks will accept valuations from 1 or 2 Tasadors whilst a few employ their own.

Your income is the other determining factor and the monthly repayments have to be covered by up to 40% of your NET salary, but most banks will only accept 35%Land purchase is limited to 60% of valuation by most lenders, as is lending on ‘Finca Rustica’ property.

If you already own land and want to build then construction loans are an option. The bank will lend up to 70% of the projected completed value which in most cases will be more than enough to cover 100% of the build cost.

Which Currency should I borrow in?
Mortgages are available in most major currencies. You should be aware that if you borrow in a currency that does not have a fixed value against the euro, currency fluctuations could make your borrowing more expensive or less expensive depending on whether your chosen currency weakens or strengthens against the euro.

What Interest rate will I pay?
Interest rates again will depend on the currency you choose to borrow. Interest rates for mortgages in euros are based on the European Inter Bank Overnight Rate, or EURIBOR for short, which has largely takeover from the older MIBOR. The lenders rate will be a margin over EURIBOR generally EURIBOR +0.75% to 1.5% but individual circumstances can dictate higher or lower rates. Fixed rate mortgages are available at slightly higher interest rates. Some lenders offer a lower Start up interest rates for the first year or part interest only mortgages, ideally suited for funding new construction.

How often will interest rates be reviewed?
Usually once a year, fixed rate mortgages are available at higher interest rates. What is the maximum repayment period? Mostly commonly, 15 or 20 years, but up to 35 years can be arranged.

What information will the bank require:
Banks vary in the amount of information that they require, but in general the more you can provide the easier the loan is to procure. Ideally the following would be good:

If you are employed:
Last 3 wage /salary slips. Latest P60. Last 6 months bank statements. Reference letter from your employer confirming date of employment, proof of income and position and prospects within the company Bank reference (The lender may have to apply for this themselves depending on who you bank with) Some lenders require an experion credit check to be carried out Copy of passport/residencia.

If you are self employed:
Last 2 years tax returns. Copies of accounts for the last 2/3 years Chartered accountants copy report, confirming your annual personal drawings from the company Copy of your passport/residencia 6 months personal bank statements Bank reference letter

You will also need:
In relation to a specific property, the nota simple from the property registry, offer letter or sales purchase contract.

If you are applying for a construction loan then you must provide the Escritura for the land. The plans stamped by the College of Architects and a 10 year building guarantee.

An NIE number from the local police station, which you or your lawyer can arrange. You will also need to open a Spanish bank account and it is advisable to use the same bank as your mortgage is with.