What mortgage offerings can be obtained in Spain
The range of mortgage types available in Spain is limited. Unlike other countries where the range of product types will be vast, in Spain loans are often very traditional variable rate trackers with little difference, except on margin rates and set up costs, between what one lender offers and another. Whilst during the boom years more sophisticated products like, offset mortgages and credit lines were available, as the credit crisis in Spain dragged on, contraction of Spanish mortgage products increased with Banks reducing their overall offerings. This was to a point where for many Banks in Spain repayment, variable rate loans were the only offering.
Of recent times, during 2015 and expanding each year since, most Spanish Banks have added to their product portfolio a wider and more attractive range of fixed rate products. Fundamentally these fixed rates products are the same in terms of sophistication as the variable but do take away exposure to increases in the Euribor over the lifetime of a loan. The Bank of Spain has actively encouraged Spanish Banks to increase fixed rate availability and most lenders now have a good range of 10 to 20 year full term fixes.
Fixed rates in a lending environment where re-mortgages are currently not offered, can provide long stability hedging against future rate increases. Down side of fixed rate products remains the fact that early repayment penalties can be higher than for variable rate products.
Loan completions on fixed rates have risen from 6% or so of total loans contracted each month to over 40%.
Due to changes in regulation requiring that any EU citizen who is a citizen at application can change the currency of their loan if in the future they are paid in a different currency has meant at least temporarily sone lenders will not offer UK nationals a fixed rate and other nationalities can also be affected.
Contact us to understand more about what products might suit you and what you can borrow.
Buy to let Mortgages
Whilst it is unusual for Spanish Banks to restrict, within the deed, the ability of the owner to rent a property out, no buy to let mortgages in Spain are available. This means all loans are based on the affordability of the individual owning the property and rent is not taken into account. The facility to offset interest payments against rent coming in should still be possible even if the property is held in a personal name but the loan is not going to be considered a loan specifically for rental purpose.
Non Resident commercial lending, in all but very rare circumstances is extremely difficult to secure, with Spanish Banks generally only offering residential home loans. Each commercial application is looked at on a case by case basis.
What Spanish mortgage options are available
All loans in Spain with Spanish Banks are of a repayment nature. Terms of between 20 years to 25 years are standard with maximum age by which the mortgage in Spain must be repaid being 75 years. Some lenders will restrict this to age 65 and most lenders will want the applicant to be no older than age 65 at the start of the loan.
Some lenders whilst offering longer terms within their portfolio will look to keep years to a minimum to ensure more capital is paid off quicker where a client can easily meet these repayments.
Spanish loans are predominately variable trackers and track either the 12 month Euribor or the old IRPH , which is a rather obscure Spanish bank rate almost obsolete for new contracts. Loans tracking the 12 month Euribor are reviewed once a year and adjusted against that months published prevailing Euribor for completions and revisions. The margin above the Euribor for repayment loans remains static for the lifetime of the loan. Overpayments are allowable by law and maximum early repayment charges for a repayment loan are from June 2019 0.25% for 3 years or 0.15% for 5 years and 0% thereafter. Most Banks apply the maximum by law for both full and partial overpayments. Regular monthly overpayments are not an option as the loan is only reviewed each 12 months so any overpayments would be made by way of a lump sum.
Fixed or mixed fixed variable rate loans can have higher early repayment penalties during the fixed rate period but these are only applied as a percentage of the interest rate loss or capital repaid and the lower of the two. They can be up to 2% first 10 years and 1.5% thereafter but few Banks apply the maximum.
Interest only Mortgages
Interest only once readily available in Spain for a limited term has now disappeared from the market. In some rare circumstances and on a case by case basis the Spanish Banks may still consider a very short term of interest only between 6 to 12 months. To obtain this facility rationale as to why it was required would need to be presented and agreed. The few banks who still offer construction or self build mortgages may allow the payments to be interest only during the construction period up to a maximum of 2 years.
Fixed rate mortgages
Fixed rate mortgages are available. There are two types of fixed rates in Spain, those where the rate is fixed for the term of the mortgage and those where the rate is fixed for a specific length of time and reverts to variable when the fixed rate expires. As Spanish Banks have moved toward fixed rates it has become more difficult to get a mixed fixed/variable. Full term fixed rates are the most widely offered. Fixed rates in Spain, previously, at much higher rates than the prevailing variable are currently much better value for money.
In the past, fewer than 10% of all loans completed in any given year were on a fixed rate basis as traditionally variable rates were the preferred choice of the Spanish Banks. In the current environment this is changing.
Fixed rate options range from between 3 years to 30 years. Fixed rates cannot be secured at application as would be normal in the UK, but will be the fixed rate available at offer as designated on the FEIN. Most lenders will hold the rate given at financial approval as long as completion happens while the approval is still valid but there is no guarantee they will do so.
If a client applies and has underwritten a loan on a fixed rate basis and when the offer comes through decides not to progress on a fixed rate basis the application must be reloaded and underwritten again on a variable rate basis. Early repayment charges when relating to a fixed rate product can be as high as 2% for first 10 years, and up to 1.5% thereafter and the lower of the interest rate loss or capital repaid.