Property Guides and Information for the Costa del Sol, Spain

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 | Category: Finance & Mortgages