Property Guides and Information for the Costa del Sol, Spain

The Mortgage Guide

With the introduction of the euro, mortgages in Spain have never been easier to obtain. The Spanish system of property finance is rapidly catching up with 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?

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 come over to see any property we can put you in contact with our recommended mortgage broker 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, with the peace of mind of knowing your exact price range and that the funds, costs, etc, have all been pre-calculated. If you are raising a mortgage your sales agreement should have a clause stating the purchase is ‘subject to’ finance being arranged, and a specified date.

Spanish mortgages

A typical Spanish mortgage requires you to show proof of income. However, there is an increasing array of mortgage products available on the market and your broker will be able to advise you of the one that best suits your circumstances. 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 by the valuation of the property by an approved tasador (valuer). Tasadors are qualified technical architects with special training in property valuations. A valuation will cost approximately 350€, and will lead to a full report on the property, the bank will then set the amount to be lent according to this figure.

The banks in Spain typically lend up to 70% to non-residents and 80% to residents for properties up to 500,000€. In certain circumstance it is possible to have a sales price that is considerably lower than the valuation given by the tasador, and it may be possible to get a higher than normal loan.

Euro mortgages are available on a variable interest rate repayment, fixed interest rate repayment, interest-only or endowment basis and can be for anything from five to thirty years, however, all mortgages should be fully repaid by the age of 75. Therefore your age will affect the length of term you can qualify for.

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 by

La Caixa Bank

For example – if you have an income of 2,500 euros net per month: 35 per cent is deemed as being available towards paying a Spanish mortgage (875 euros), allowing you to borrow up to, say 230,000€ towards the purchase of your Spanish home. (This is calculated at a four per cent interest rate over a 25-year period.).

What do you need to set up your mortgage?

Here is a list of the following documentation you will have to provide depending on your personal circumstances:

• 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,
• Passport(s) or resident permit (residencia),
• Proof of residence in the 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, the last two years tax returns and a letter from your 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.

All your broker or bank will need is a copy of the “nota simple” from the Land Registry for the property you want to buy, and a copy of your reservation or private purchase contract. The application process takes two to four weeks from the moment your provider receives a completed application form and all supporting documents. However, an agreement in principal may only take 24 hours, subject to you providing all of the supporting documentation.

Mortgage interest rates

Most mortgages interest rates are usually indexed to the Euribor (Euribor is determined by the European Banking Federation (EBF) each day) and the banks currently charge an extra 0.5% to 1%. A variable rate mortgage therefore tracks the Euribor index. A fixed rate mortgage will mean repaying at a higher rate than the current variable rate, with an interest that is fixed for the period of the mortgage.

Costs of setting up a mortgage

The costs of setting up your mortgage will vary, generally, the more complex the scenario the higher the fee. As a guide the fees involved will typically be between 1 and 2% of the amount borrowed.

What are the risks with a variable-rate or interest-only mortgages?

Mortgage rates will fluctuate over the coming years, and the Spanish Mortgage Association (AHE) has issued notification that rates will go up sometime over the next few years. Interest rates for mortgages in Spain have fallen from 16,72% in 1990  to 10,42% in 1994 and continued their decline to 4,72% in 1999 with record lows in 2005 at 3.2%. 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 setting up a variable-rate mortgage, then ask your lawyer or broker to negotiate a clause with the lender that stipulates that there are no penalty fees if you should decide to transfer to a fixed mortgage rate scheme over the same period. If you are living in a country which is not in the euro zone, then use a money exchange service to ensure you minimize costs and don’t lose out on exchange rates.

April 21, 2006 | Category: Finance & Mortgages