Property Guides and Information for the Costa del Sol, Spain
Hello and welcome, I live in Spain and I think the Costa del Sol is a wonderful place to own property as a second home or retire to. If you are interested in property in Spain this weblog provides a guide for all the information on questions you may have about Spanish tax, law, mortgage and finance as well as explaining the steps you should take while buying your dream property.
Click on any of the categories in the right hand column to research a topic you are interested in NOW and the guides will appear as titles below.Green Home Design
keywords: plot, land, self, build, construction, sustaoinable, green, renewable, building.
A residential design firm promoting the use of Sustainable and Green Building, Straw Bale Construction, Renewable Energy, and Modern Architecture.
Design Forward / Green Home Design
July 28, 2005 | Permalink
The changing population in the UK: Potential Impacts on the Market for Overseas Holiday Home and Investment Purchasing on the Costa del Sol.
Ben Johnson / Bright
keywords: Spain, investment, property, rent, rental, demand, financial,
Property investment is for the most part a long term financial under taking; therefore it’s a good idea to consider the long term demographic changes that ultimately affect supply and demand for property.
Download this Exclusive Report
July 15, 2005 | Permalink
The Quick Mortgage Guide to Spain
By Ben Johnson / Bright
keywords: Marbella, spain, costa del sol, mortgage, guide, finance, eurobor, flexible, interest, rate.
Mortgages in Spain have never been easier to obtain, the system of finance is rapidly catching up with the standard norms in Northern Europe. Spanish banks are now beginning to release credit, on interest only options as well as equity release schemes.
How do Spanish Mortgages compare to rates from other European countries?
The answer to this question is pretty good. Rates and terms are amongst the best in Europe at the moment. The ease of obtaining a mortgage and low rates currently offered by the bank have led the Spanish to release equity from their own property and invest in the country’s housing boom.
How should you go about researching the finance for your property?
Before you came over to see any properly contact Bright (our advice is independent as we do not ask for commissions from our associates) and we will point you in the direction of one of our recommended mortgage advisors for a quote on: how much you can borrow, what the repayment costs would be, and what price range and how big a deposit you would require? Armed with this information, you can go out and find the right property for you, with the peace of mind of knowing your exact price range and that the funds, cost, etc., have been provided.If you are raising a mortgage your sales agreement should have a clause stating the purchase is ‘subject to’ finance being arranged, and a date specified for completion. The balance of the purchase price and all fees will be payable when the vendor and purchaser sign the “escritura de compraventa”, or the title deeds of the property.
Spanish mortgages and how they work?
All mortgages are full status, and proof of income will be required. Spanish mortgages can be arranged to buy a new or resale property, for renovation of an existing property or for the construction of a new property.Mortgage amounts are set according to the valuation taken by an approved “tassador” (valuer). Tassadors are qualified technical architects with special training in property valuations. A valuation will cost approximately 350 euros, and will lead to a full report on the property, the bank will then set the overall lending amount according to this figure.
The banks in Spain lend up to 70% to non residents and 80% to residents of the accepted valuation for properties up to500,000€. The amount loaned by the bank depends on the valuation of the property not the sales price. It is currently possible to have a sales price that is considerably lower than the market valuation given by the tassador, therefore, in certain situations it may be possible to get a loan that covers the whole sales price.
Due to the nature of financing new properties your mortgage provider will arrange the issue of a “letter of intent” by lenders rather than a mortgage offer for off plan properties, until the property is completed.
Euro mortgages are available on a repayment, interest-only or endowment basis and can be for anything from five to 30 years. All mortgages should be fully repaid by the age of 75. The 70 to 75 per cent Spanish mortgage is secured on the property in Spain; the 25 to 30 per cent required can be borrowed using your UK property as security.
Spanish lenders assess eligibility on the applicant’s ability to service the loan and not potential future rental income. As a guideline, 35 per cent of your net income can be spent on a Spanish euro mortgage, however many surveys are showing that Spanish banks are currently lending at 50% of net income (La Caixa, 2005).
For example – if you have an income of 2,500 pounds net per month: 35 per cent is deemed as being available towards paying a Spanish mortgage (875 pounds), allowing you to borrow up to, say 230,000€ towards the purchase of your Spanish home. (This is calculated at around four per cent over a 25-year period.).
What do you need to set up your mortgage?
• Any self-employed earnings are assessed on the last three years net income.
• Other rental and investment income will be considered.
• In many cases your provider will request copies of your last six months bank statements in order to present a mortgage case for you.
• Passport(s) or residencia
• Proof of residence in the UK or Spain – i.e. driving licence or council tax/IBI tax
• Six months personal bank statements illustrating declared income and outgoings
• Three most recent wage slips and last P60
• If self-employed, last two years tax returns and letter from accountant confirming your income and tax payments for previous year
• Last two years ´tax returns and letter from accountant confirming your income and tax payments for previous year
• Any proof of other sources of income that you want to borrow against
• Copy of any tenancy agreements on buy to let properties
• Any pension you are receiving
Your lawyer will obtain the “nota simple” from the Property Register, and you supply a copy of the private contract to purchase your Spanish home.
The process takes four to eight weeks from the moment your provider receives a completed application form and all supporting documents. However, an agreement in principal may take only 24 hours, subject to you providing all support documents.
What are the current rates with the banks?
Click here to see the latest rates
What are the risks with a variable rate or interest only mortgage?
Obviously mortgage rates will fluctuate over the coming years, there is growing concern that the current ease on the restrictions of lending criteria needs urgent review to avoid a possible property bubble.
The Spanish Mortgage Association (AHE), an organisation representing 80% of the financial system in Spain, has issued notification that rates will go up sometime over the next few years. The association points to the following facts:
• The volume of mortgages negotiated in Spain rose 24.3% in 2004, bringing the total mortgage debts to 581.30 million Euro.
• 99.2% of the mortgages are with floating interest.
• The average amount in each mortgage has risen from 44.300 Euro in 1995, to 106.867 Euro in 2004.
• The normal time of repayment of mortgages has gone from 12 years in 1990, to 17 years in 1995, 20 years in 1998 to 25 years in 2004.
Interest rates for mortgages in Spain have gone from 16,72% in 1990, down to 10,42% in 1994, continuing down to 4,72% in 1999 and probably hit bottom in 2004 with only 3,41%. The Mortgage Association expects that in the second half of this year, the interest rates will start to move upward again. They expect that interest will rise to 4,75% by the beginning of 2007, and this will obviously have a direct impact on the amounts people will have to repay.
If you are thinking about commencing with a variable rate mortgage, then ask your lawyer or broker to negotiate a clause with the lender that stipulates that there are no cancellation fees if you should decide to transfer to a fixed mortgage rate scheme over the same period.
July 14, 2005 | Permalink
Property Running Costs Calculator
Ben Johnson | Bright
keywords: spanish, property, costs, calculator.
An excellent calculator that will help you establish the costs of owning your Spanish property
July 14, 2005 | Permalink
10 Inexpensive Ways to Spruce Up Your Rental or Rehab Property
Bill Bronchick/ REIClub.com
10 Inexpensive Ways to Spruce Up Your Rental or Rehab Property
It's easy to fix up your properties if you have unlimited cash. However, you need to keep your repairs to a Related Information: "Flipping Properties Course" minimum to stay profitable. You also need to keep your properties in good shape to attract tenants or buyers. There are the basic improvements, such as carpet and paint, but these can still costs thousands of dollars. The following are some inexpensive ways to improve your properties with very little cash.
July 4, 2005 | Permalink
How to work out the discounted cash flow
Ever wonder how to estimate the future value of your investment over a period of time, or the present value value of a lump sum of capital held in the future. This calculator and explanation is very handy if you are trying to work out the true value of profits and costs on your property over time.
By Creative Academics
What is this?
The discounted cash flow calculator is a tool to help estimate the present value of a stream of cash flows discounted to the present.
How do I use it?
The calculator takes three inputs to produce the present value:
• Cash Flow - Latest cash flow
• Discount Rate - The rate at which future cash flows are discounted
• Cash Flow Growth Rate - The rate of growth of the cash flows
The growth rate may be specified as a simple growth rate or a multi-stage growth rate. A simple growth rate is entered as an integer and implies a constant rate of growth over the lifetime of the earnings generator. If a simple growth rate number is entered, the perpetual annuity formula is used to calculate the present value of the earnings stream (see How does it work). However, since most companies cannot be expected to show constant and simple growth, a multistage model must be used to calculate the present value of the earnings stream. You can enter a specification in the growth field to define the multistage model. It takes the form of g|y:tg where g is the growth rate for y years and tg is the terminal growth rate for the perpetual annuity calculation. You can string as many stages together as you like to model the growth. For example, the specification g1|y1:g2|y2:tg would mean grow at g1 for y1 years, then grow at g2 for y2 years with a tg terminal growth rate.
Additionally, some of the cash flow may be assumed to be plowed back into the business in order to generate the faster growth. To specify the non-plowback (payout) percentage, the specification g1|y1%p1:tg may be used for each stage where g1 is the growth rate of the stage, y1 is the length in years of the stage, and p1 is the percentage of the present value of the stage not to be reinvested to generate the growth (also known as the payout ratio). By default, none of the present value of the individual stages is assumed to be used to fund the growth (p1=dividend payout ratio=100).
How does it work?
In order to understand how the calculator works, you have to have a basic understanding of the methodology of the discounted cash flow valuation. The best way I know of to explain this is to start with an example. Let's say that you have a company or other entity that produces annual earnings or cash flows of exactly $1000 each year.
This amount never changes but goes on forever into the future. What should one pay for this series of cash flows? Well, one year from now we will receive our first $1000. What should we pay today for $1000 in a year? It depends on what we think we could have earned on our money or what we demand to earn on our money over the course of that year. This opportunity cost or required return is called the discount rate. For our example, we'll assume that we require a rate of return of 10%. This means that for the promise of receiving $1000 a year from now, we should be willing to pay $1000/1.1 or $909.09. Working the other way, you can see that a 10% annual return on 909.09 results in a value of $1000 in one year.
OK, that gets us the present value of one years earnings given our 10% discount rate. But, remember that our example company pays out $1000 each year forever. In the second year, we will again receive our $1000 but this time we will have to wait two years to get it. This means that we have use two years worth of discounting to arrive at the present value of the second years earnings today. This value is $1000/(1.1*1.1) or $1000/(1.1^2) or $826.45.
Following this same line of thinking, you can see that the third years cash flow can be valued at $1000/(1.1*1.1.*1.1) or $1000/(1.1^3) or $751.315. By now you can see that the present value of each years cash flow can be written as $1000/(1.1^n) where n is the year number. You may also notice that as the years increase, the present value each years cash flow decreases because the denominator is rising each year. In fact, if you go out far enough, the denominator becomes so large that the values beyond a certain point do not contribute enough to the total to be meaningful. The present value of all of the cash flows is the sum of the present values of each of the individual cash flows and because of this convergence, the sum of this infinite series of cash flows can be reduced to a simple equation:
pv = c / k where
c = coupon
k = discount rate
Using this formula, we can calculate the present value of an infinite series of annual payments of $1000 with a discount rate of 10% as $1000/.1 or $10000. We could have achieved the same result if we had actually finished calculating and summing the present value of each years cash flows: pv = $909.09+$826.45+$751.315+... (try it out on a spreadsheet if you aren't convinced) but this is quite a bit quicker.
What if we have growing cash flows? The same technique is applicable. Let's now assume that in addition to our first criteria, that our cash flows are growing by 5% per year. At the end of the first year we will receive $1000*1.05 or $1050 whose present value we can calculate as ($1000*1.05)/1.1 or $954.545. The value of the second year cash flow will be ($1000*1.05*1.05)/(1.1*1.1) or ($1000*(1.05^2))/(1.1^2) or $911.157. You should be able to see the pattern forming here. The present value of each years cash flow is ($1000*(1.05^n))/(1.1^n) where n is the future year number. Just like our non-growth example, this series also converges and can be reduced to a simple equation:
pv = c / (k - g) where
c = coupon
k = discount rate
g = growth rate
This is the formula for a constant growth perpetual annuity (our original formula was just a special case of this same formula with g=0). Again, using this reduction, we can calculate the present value of our example cash flows of $1000 growing at 5% a year discounted at 10% as $1050/(.1-.05) or $21000. Notice that in this case, the coupon input to the formula was $1050 instead of $1000. This is because the perpetual annuity formula expects the year one coupon as its input. Since our coupon is growing at 5% a year, it will be $1000*1.05 or $1050 at the end of a year. The calculator takes care of this first year growth for you - it takes as input the current or year zero cash flow.
You may be asking yourself at this point, given the simple nature of the equations we came up with: Why do we need a calculator? Well, for the examples we used, you don't, you could have done them in your head. But, the examples we used were very simple and not too realistic. For one thing, you can see that the perpetual annuity formula doesn't work if the growth rate is greater than the discount rate although many companies may exhibit short term growth rates much higher than useful discount rates. Another problem is that growth rates are not constant. Companies go through phases in their life cycle in which they will have different rates of growth.
The solution to these problems is to use what is known as a multi-stage discounted cash flow valuation. Each 'stage' is a period of years at a certain growth rate which can be different for each stage. These explicit growth rates are accompanied by a terminal growth rate that specifies the perpetual growth going forward after the specified growth periods. For example, we might specify that the growth will be 15% annually for 5 years, 10% for the next 7 years, and 5% after that into the future (this would be specified as 15|5:10|7:5 in the calculators growth input). Since the growth rates and timeframes can be different for each stage, there is no easy formula to lead us to the final result. This is where the calculator comes in.
The calculator calculates the present value of each years cash flows by stepping through the growth definitions. This is just like we did in our earlier examples above except that the calculator has to keep track of what growth rate it is currently using from year to year. When it is through calculating the cash flows for each year of the specific growth, the calculator takes the final cash flow from that process and grows it by the terminal growth rate. The perpetual annuity formula can then be used with this as its coupon to value the terminal value. Since the result of the perpetual annuity calculation is some distance into the future (remember that this process starts at the end of the specific growth periods), the result must be discounted to the present by dividing by (1+k)^N where k is the discount rate and N is the total number of years of the specific growth definition. Finally, the total present value is calculated by adding the present value of the terminal growth to the sum of the present values of all of the years of specific growth.
July 2, 2005 | Permalink