Property Guides and Information for the Costa del Sol, Spain

Overseas Mortgages: Choosing your Brokerage

Christine Birch | Spanish Mortgages Direct

keywords: mortgage, spain, broker, service, information, guide

As you may be aware, UK property markets have been booming. However, you may be less aware that the growth in the UK markets has been part of a global trend.

Countries like Spain, Italy and Croatia are now accessible places for British homebuyers to relocate or purchase vacation homes. Buying a dream home on the Costa del Sol is commonplace and the Italian countryside is changing from an exotic vacation spot for the wealthy to a viable place to purchase a second home. Eastern Europe is becoming another hot spot for British buyers, with the spectacular Croatian coast emerging as an attractive locale. A truly European property market is emerging, where buyers in Surrey or Leeds can go to a property fair in Manchester to choose their ideal home abroad.

A number of factors are driving this transformation. Many European countries have undergone structural changes and, over the past 20 years, the Costa del Sol has improved its infrastructure by leaps and bounds. Funding by the EU has also improved the road and communication network and people can now travel back and forth on a regular basis on low cost airlines. The same changes are occurring in Eastern European countries and their recent entrance into the EU has only accelerated this process.

Market forces are also driving this transformation. Low interest rates in Britain have been a major factor in the domestic boom. Even lower interest rates in Europe make buying property there very affordable. Further, the exchange rate between the Euro and Sterling remains favourable. As a result the highest percentage of expats buying in Spain are British. The over 30,000 Spanish properties sold to non-residents in 2004 testifies to the power of these market forces.

These changes in overseas property markets are having important consequences for UK mortgage introducers. While the process of procuring a mortgage is the same across Europe, we all know the devil is in the details when it comes to mortgages, especially when it is overseas.

Spain provides good examples of the challenges involved in buying property and arranging mortgages overseas. While it is the most popular destination for the UK buyer and has a fairly evolved mortgage infrastructure, it also presents potentially disastrous problems.

Different Laws

The laws in Spain are unlike those in the UK therefore to successfully arrange a Spanish mortgage, it is important to understand the differences. While in the UK the laws protect the buyer, the laws traditionally favor the vendor in Spain. This subtle difference can have its consequences for arranging a mortgage in Spain.

If a client sets a date to complete the purchase of a home and is unable to complete the transaction—for whatever reason—there is a chance of losing the deposit. It is important therefore that the mortgage introducer and the lender are able to complete by the given date otherwise the client could lose their dream home in Spain and the 30% deposit they have paid, often over €100,000 in hard-earned cash. When operating in this kind of environment, it is important to have tremendous trust in the competency and professionalism of partners including lawyers and lenders.

Regulations and Licensing

Licensing requirements for property and mortgages are complex. Introducers need to obtain the right licences at the right times to avoid clients losing their property. As a broker, it is important to be familiar with the finer details of these regulations and have the instincts to identify a problem when it is happening.

The process of getting a firm offer from the bank, getting a valuation, and arranging the signing at the notary office takes quite a lot of organizing. For example, the final signing at the Public Notary office usually requires the presence of the vendor’s lawyer, the buyer and the buyer’s lawyer, the Gestoria, the Notary and the bank director. Getting all of these people to attend at a specific time is not a simple matter. Further, there are elements of the process of arranging a Spanish mortgage that do not usually apply in the UK, such as obtaining an NIE number for your client, opening a Spanish bank account, and dealing with foreign exchange issues.

Spanish Lenders

Relationships with lenders are the lifeblood of a broker’s business. The same is true in Spain. Like in the UK, there are hundreds of lenders with numerous products and all sorts of terms and conditions. However the real difficulty lies in the fact that almost all Spanish lenders conduct business and publish their product matrices in Spanish, which makes the process infinitely more complicated.

There are also cultural differences that are not always obvious such as the exact definition of a firm commitment. One of the nightmare scenarios for any introducer is providing clients with an ‘agreement-in-principle’ to mortgage a new home, only to discover it did not mean what your or your client thought when the balance comes due and a mortgage is required. Many UK introducers have dealt with these risks by seeking out partners in countries popular with UK homebuyers. Selecting the right overseas partner is therefore critical for UK introducers as the expectations on their clients expand to encompass this service.

However, in Spain, the process of finding partners for overseas transactions is not simple; there are numerous small brokerage firms catering to British buyers. The Spanish mortgage brokerage industry is not regulated by any organization comparable to the FSA and there is no serious self-regulation. When looking for partners in overseas mortgages, it is important to consider factors such as independence, professional infrastructure, regulation, and fee sharing.

Independence

In any mortgage broking relationship, independence of advice is critical. In Spain many of the brokers—particularly the larger and seemingly more professional operations—are owned or otherwise closely affiliated with real estate companies. This lack of independence is particularly problematic because the relationships between real estate companies and mortgage brokerages are not usually advertised. Clearly, the definition of “independent” can get lost in translation. Other firms, such as Spanish Mortgages Direct and Viva Costa do maintain true independence in the marketplace.

Professional Infrastructure

Given its unregulated nature, anyone can set up as a broker in Spain which means there are many one-man-shops offering brokerage services. Many of these small shops will charge higher fees and provide no guarantee that they can deliver what they promise. However, professional brokerages do exist. They are the ones with offices in the UK and have British advisors as well as native Spanish processing staff dealing with the banks and translating mortgage offers into simple, understandable English. The largest Spanish mortgage brokers such as Spanish Mortgages Direct and Green Independent are able to provide this level of professional infrastructure and service.

Regulation

Your ideal partner should work to UK standards and you and your client should have some recourse to their UK office and UK regulators. Further the strongest brokers have a complaints procedure and the ability to provide a documented track record of successful, happy customers. Given the popularity of Spain with the British buyer, maintaining a best-in-class partner in Spain is a must.

March 8, 2006 | Permalink